56981 Vol. I, No. 12 Challenge vs opportunity By BW Reporters in line with the strategic com­ Jean-Michel Severino, vice pact's emphasis on cost effec­ president for the East Asia Pacific LEADERS OF the international tiveness. region, told Bank's World that he tinancial world are gathering in There are indeed many serious hopes that after the meeting dele­ Hong Kong for what promise to be issues to discuss, not least how to gates would appreciate the diver­ the biggest and one of the most handle the currency turmoil sity of the region and "be able to challenging annual meetings in the which started in Thailand and has assess the different countries on history of the Bretton Woods insti­ spread to much of fast-growing their own merits" and not just tutions. There is both symbolism Asia and caused worries in lump all of them together. The and great significance in the fact Japan, because of its close eco­ Asia-Pacific region also includes that they are taking place in Hong nomic involvement with the the largest concentration of really Kong, now part of China, in the region. Both the Bank and Fund poor people in the world, those heart of Asia, which has seen such are working on plans to restore who have to survive on $1 a day stellar growth and is today being stability to the region. Apart from or less, and this will be another buffeted by currency turbulence. its participation in the $17 billion important focus, along with The Chinese authorities are rescue package, the Bank's board emphasis on the need to curb cor­ treating the meetings as a key has put a $15 million loan for ruption if the poor are to gain the opportunity for the international banking technical assistance to benefits of development aid. community to see that the "one Thailand onto the fast track and Before the meetings proper country, two systems" rule it has sent a team- of experts to start, the Hong Kong convention promised for Hong Kong when it Bangkok to begin work on a center will become a marketplace resumed sovereignty in July is in financial reform plan. The mes­ for ideas through the Bank's pro­ fact working. Chinese leaders, sage that will go out is that tough gram of private-sector seminars. including Jiang Zemin, Li Peng, action and financial discipline are This year besides sessions about Zhu Rongji, and Hong Kong 's essential to restore stable eco­ Asian business prospects, China chief executive Tung Chee-hwa are nomic growth. 2020, how to defeat corruption, expected to attend. The Hong Indeed there are some fears there will be an opportunity to Kong Monetary Authority is that the currency and financial cri­ hear both Malaysia's prime min­ expecting 15,000 ministers, offi­ sis may so overshadow the rest of ister Mahathir Mohamad and the cials, bankers and other guests plus the meeting that other important man he has castigated as respon­ 2,000 people from the media, issues may not get the attention sible for East Asia's ills, investor which would make the meetings a they deserve. The Bank is today and philanthropist George Soros. bigger event than the handover of launching its China 2020 series of Asian countries will also be Hong Kong from British colonial volumes, a landmark analysis of arguing for a generous new allo­ rule on July I. the country on its quick economic cation of special drawing rights However, the World Bank has march from being a poor rural in the IMF as well as seeking a cut back sharply on staff atten­ country to a modem urban indus­ bigger quota share which better US treasury secretary Robert Rubin (I) welcomes HK chief executive CH Tung to Washington dance for budgetary reasons and trial power (see p. 19). reflects their economic power. VATICAN BACKS BANKlIMF BETTER DEAL FOR POOR By Lauren Ptito month at which the Holy See will da's debt by $338 million in net that we have made tremendous transferred $500 million to the urge the donors to greater gen­ present value terms ($700 million progress over the last 12 months HIPC trust fund and another trans­ POPE JOHN PAUL II has given erosity and action on corruption. in nominal terms); a package for [on HIPC]," Bank president James fer of $250 million was recently his blessing to the World Bank's The initiative, proposed by the Bolivia was approved last week. Wolfensohn said in his semiannu­ recommended by the board to the work to combat poverty, especial­ World Bank al report to the Develop­ governors [of the Bank and IMF] . ly its measures to help heavily and the IMF ment Committee. "We I am prepared to recommend addi­ indebted countries and to curb and agreed have presented debt tional allocations to the trust fund corruption, according to one of upon by gov­ relief packages for six to meet the Bank's share of the his senior advisers. ernments [countries] , amounting cost as we progress with the initia­ In an interview with Bank's around the to about $3 billion in tive's implementation. This will World (see p. 17), Roger Cardinal world last year, present value terms, help create the fiscal space that Etchegaray, president of the Pon­ enables poor [which] could translate will allow our poorest member tifical Council for Justice and countries with into nominal debt ser­ countries to redouble their efforts Peace, conveyed the Pope's good policy vice relief of about $5 to improve social conditions and reminder that the commitment to performance to billion. reduce poverty. free markets will not solve all the escape from The heads of the Bretton Woods institutions, Michel Camdessus (I) of the IMF and "Let me reiterate the "Let me also express my sin­ James Wolfensohn of the World Bank problems of development. But the unsustainable Bank's strong commit­ cere thanks to the countries that Roman Catholic Church is giving debt and focus aU their energies Decisions on Burkina Faso, Cote ment to providing debt relief to have made special contributions special backing to the heavily on development. Last April the d'Ivoire, Guyana and Mozam­ those HIPCs with unsustainable to the trust fund and urge all gov­ indebted poor countries (HIPC) Bank agreed to support a package bique are expected in the near debts but strong track records in ernors to give urgent attention to initiative and Bank-Church meet­ of debt rehef, to be delivered by future. implementing social and econom­ possible additional contributions," ings are being arranged for next April 1998, that will reduce Ugan- "I am very pleased to report ic reforms. Earlier this year we Wolfensohn added. I NSIDE .•. INSIDE ... INSIDE .•. INSID News .................3 Lindbaek leads ........10 War on corruption ......5 MIGA seeks $lbn .....10 A new spirit ........... 6 ICSID offers bargain ...11 Nigeriens demand a say .. 7 Bank top of AAA class .•15 Midnight oil in Romania. 7 Cardinal: people first ...17 Reviving Mexico's banks. 8 Rubin's views .........18 Wave of the future ...... 8 China's voyage ..••....19 Rebuilding Haiti ....... 8 Keynes on markets .....20 Greening Pakistan ...... 9 Thrbulence ...........24 IFC on horseback ......9 Genuine Thng .........24 In search of India - p. 12 Solid as a rock - p. 20 Palestinian hopes - p. 22 To beco"'1e successful ih. a re~ion. of suc."- diverse t.ultures and la~3u8~es as Asia. its vital to Ust~1'\. to th.e nee~t; o~ -the people. Only b11i5te.nin.~ can. you truly urtdtrstana.. whic.k ,s what we've been. dOh\3 for OV~,. 10 yea rs ana ~ we."ve ,u\(.kly ~ro\IJ1'\. to be. Qne of lh.e b",est \t\surance vo\(.es in tl\t~ rt9iort.. WHh office.s in aU the majoi ~i\i~S we',.~ reaay to li~len to -the nQe­ w Z o >­ on your 52nd annu ::; Vl m Z :J --.l :J ~~.a~etings ! z » --.l o :s: Z o o Vl I n o ~ 0::: w > :J o U z § ANA All NlolJonAll'UlaYs ....... HONG KONG .... ·PARIS· .... FRANKFURT .... · LONDON .... GUAM .... ·BRISBANE· ...... · JAPAN'S BEST TO THE WORLD .. · .... ··· THE WORLD BANK BRINGS You A UNIVERSE OF INFORMATION With more than 1,200 books, journals, and electronic p roducts in print, including the latest economic data on 209 economies, in-depth country and regional reports, and shldies on a w ide range of development topics-agriculture, banking, education, energy and power, finance and debt, health, infra­ tructure, welfare, trade, gender issues, and much, much more . If you're a ttending the World Bank /IMF Annual Me hngs in Hong Kong, please come by the Publications Booth to see what the Bank's Office of the Publisher has to offer. For m ore information, please w rit or con tact the Bank's customer service department at the addresses listed at the bottom of this p age. You may also check our website at http://www.worldbank. org/ and search our catalog under the "Publications" menu. Below you w ill find some of the m ost p rominent releases of 1997: China 2020 This new, seve -volum set looks at the m ajor issues facing the w orld's fastest growing economy over the next tw decad es. World Development Report 1997: The State in a Changing World The 20th annual edition of the World Bank's flag hip p ublication exam in es the role of the state and how it can be more effecti e in today's world. All 20 edition s of the R p ort ar n ow available on CD-ROM. World Development Indicators 1997 The World Bank's premiere statistical volume presents more than 600 indica­ tors and 80 data tables for nearly 150 countries. Also available on a state-of-th e art CD-ROM. World Bank Atlas 1997 The 29th edition of this international standard in tatistical compilations. The Atlas comple­ ments the Indicators through easy-to-read world maps, tables, and graphs highlighting key social, economic, and envi­ rorunental data for 209 economies. Global Economic Prospects and the Developing Countries 1997 n tis annual report reviews the long-term prospects for developing countries in light of change in the global environm nt and provides a detailed d iscussion of selected aspects of the global int gration process ir those countries. World Bank Publications In the USA, contact The World Bank, P.O. Box 7247-8619, Phila delphia, PA 19170-8619 or Pho n e : (703) 661-1 80, Fax: (703) 661-1501. Shipping and han­ cUing: U 5$5.00 . . or airmail d eliv ery outside the USA, U5$13.00 for one item plu US$6.00 fo r each addition al item . Payment by U S$ check t the World Bank or by VISA , MasterCard, or Am rican Express . Customers outside the USA, please contact yo ur World Bank d istributor. BANK'S Wt$RID 22 September 18, 1997 Palestine can become another Hong KonJ "If political limitations are lifted and Is­ is hampered by obstacles such as the re­ raeli interests, they will not tolerate terror­ cial non-absorbent stone it needs comes raeli controls ease, we will see another cent closures preventing the movement of ism. But if Israel keeps this up, attitudes to­ from Israel. Each day of closure results in Hong Kong happening right here in Pales­ goods and people into or through Israel. ward peace will change. For example, the a loss of about $1.35 million in direct tine," says Muhammed Shtayyeh, execu­ The closure was imposed by the Israelis on Palestinian Authority has just announced household income and the same amount in tive director of the Palestinian Economic July 31, following a double suicide bomb­ that it will be paying us only half our direct export losses, as well as other indi­ Council for Development and Reconstruc­ ing in Jerusalem's Mahane Yehuda market, salaries because the Israelis are withhold­ rect losses. Some estimates put the figure tion . "There are tremendous opportunities and was partially relaxed on September I, ing the tax money [customs duties, VAT, as high as $8 million. in light industry, software, tourism and af­ raising hopes that were dashed on Septem­ excise and income taxes] they collected on "Palestinians are great entrepreneurs," fordable housing. Ramallah is the next Sil­ ber 4 when another bombing restarted the our behalf. This is bad for me, but I am a Jabr says, "but their enthusiasm is losing icon Valley." vicious cycle. "It's like two men biting minister - 1 can get by for a while on half its momentum due to these closures. It Khaled, a Palestinian worker, agrees: each other's fingers," said one Palestinian. my salary. But what about her? [He indi­ makes people wonder whether the Israelis "If we had peace, this country could be "It's just a matter of who screams first." cates the secretary sitting outside his of­ want peace or not. We were all very upset great, greater than America! We can get Palestinian minister of industry Nasir fice. ] What is she supposed to do?" by the [July 30] bombing, not just the Is­ along; 10 years ago we were getting along. Jabr is frustrated. "They are telling us, you The closures have disrupted develop­ raelis. But everyone should be treated with We can' t go on like this. No one wants are punished until you get rid of Hamas. If ment projects throughout the West Bank dignity." this; 90 percent of people want peace." I put Hamas people in prison, will that and Gaza. School construction in Gaza Jabr takes his mandate - to stimulate But such hopes are built on a fragile solve the problem?", he asks. "The only was delayed because materials could not the West Bank and Gaza's private sector peace process. Even aid from the World way to solve our problems is through com­ be delivered; in Beit Lahia, a storm-water - very seriously. "We must strengthen Bank Group and other donors - which is munication. If the people in the streets un­ pumping station lies half-finished, several economic links between Israel and Pales­ helping to rebuild economies and lives ­ derstand that their interests are linked to Is­ months behind schedule, because the spe­ tine, and minimize security risks. We must ed an employment genera­ approves them. The village must conhibute tion program, financed by the at least 10 percent of the project cost, and Holst Fund (see box), to many exceed that amount. cushion the impacts of rising "Ownership of projects is very impor­ unemployment. Since its in­ tant," says Shtayyeh. "Our council decides ception, the program has gen­ priorities at the national level, but otherwise erated more than 2 million it is up to municipalities to decide what they labor days while completing want. An old man in a village near Nablus more than 450 microprojects once said to me, "The Turks were here for to rebuild village roads, 400 years, the British for 40 years, the Jor­ schools, clinics and water and danians for 20 years, the Israelis for 30 wastewater systems. More years ... and not one single person ever came recently, the Bank has been to us to ask, 'what do you want?'" shifting from emergency re­ Saeb Erekat, minister of loca. govern­ habilitation works to help ment and chief Palestinian negotiator, with policy, instituional and agrees. "We have to go to the people. They private-sector development. are the ones who know what they need. Projects are under way for They should receive the money, they legal development, microen­ should be accountable," says the bearded, terprises, housing and an in­ bespectacled Erekat, whose ministry over­ dustrial estate. sees nIral development. "I get offers all the With help from the Saudi time from neighborhoods. They say, 'If you Fund and the Italian govern­ can give us just 50 percent, we'll find the ment the Bank has also other 50 percent.' This is why seed money launched a project to finance like the [WorldJ Bank's is so imp0l1ant. A small projects done by little can go a long way," he stresses. NGOs, which provide vital services to the poor and mar­ ginalized, so that the Pales­ tinians will have a social safe­ ty net. NGOs provide an esti­ Grinning girls on the first-ever day of kindergarten in Eraq-Bourin; until now, children their age stayed at home or played in the streets mated 60 percent of the value of basic health care services I t's late summer in the streets of down­ pledged almost $3 billion in assistance to the - as weU as disability and preschool pro­ town Gaza. The sun beats down merci­ West Bank and Gaza for 1994-1998, they are grams, agricultural services, low-cost hous­ lessly and the air is rank with the stench building schools, hospitals, roads, sanitation ing, and micro-enterprise credit schemes ­ of raw sewage. Donkey carts kick up dust systems, and a brighter future. but have faced declining resources, first from around the barefoot children playing in the "We have been able to make a tremen­ a drop in Arab fmancing following the Gulf Expanding Jenin's hospital after 30 years unpaved, rubble-strewn streets while shop­ dous difference between the [Israeli] occu­ War, and more recently from a shift in donor keepers display fruits, vegetables, pita pation and now," says Muhammed funds toward programs run by the Palestinian More than half of the 2.4 million people bread, and hanging carcasses, all swanning Shtayyeh, executive director of the Palestine Authority. In addition to providing funds for in the West Bank and Gaza are 16 years old thickly with flies. Economic Council for Development and Re~ sub-projects designed by the NGOs and their or younger and the population is growing at Then a river of denim disrupts the si­ constnIction (PECDAR) , which prepares clients, the $17 million project will help the 4 percent per year (twice as fast as other lence: children and teens in jeans or denim and monitors development projects financed organizations strengthen their management Middle Eastern countries), making educa­ skirts with matching shirts - the school uni­ by foreign aid and coordinates donor activi­ and fundraising capacity and, through its use tion a great priority. form in Gaza - are on their way home from ties. "We inherited from the Israelis an ex­ of consultative processes, encourage closer In the West Bank village of Tel, 600 girls the first day of school, although it's early in tremely destroyed infrastructure. The money cooperation between NGOs and the Palestin­ line up in the schoolyard, in front of the mu­ the afternoon. They can only study part­ we have received from the World Bank has ian Authority. rals painted by last year's pupils: flowers, time, since the overcrowded schools run on been very important. Everywhere you go, Following the success of the employment rainbows, butterflies. Some of the girls wear two shifts. Gaza is home to 35 percent of the from Rafah to Jenin, you see signs announc­ generation program, the Bank contributed headscarves; others wear lluffy white bows residents of the Palestinian territories, yet ing the work of PECDAR, the Bank, and $10 million to a $30 million community de­ around their ponytails. AU are wearing the has only 20 percent of the schools. donors. We have a lot of success stories to velopment project. The project is helping blue-and-white striped tunic that is the uni­ But things are slowly improving as Pales­ tell. We make sure the donors' money gets thousands of people in at least 250 villages form in West Bank schools. It's back-to­ tinians mobilize to improve their lives and channeled to the right places." and small towns build or expand schools, school time, and this year more girls than those of their children. With help from inter­ The World Bank has six active operations clinics, hospitals, and roads and improve ever before are able to attend. "Now the girls national donors such as the European Union, in the West Bank and Gaza: three in infra­ their water supply and sanitation while cre­ can stay in Tel until they are 14; then they Italy, Japan, the Netherlands, Norway, Saudi structure rehabilitation and one each in health ating much-needed local jobs. Villages sub­ must travel to Nablus for secondary school," Arabia, Sweden, the United Arab Emirates, and education, water and sanitation, and rural mit proposals for microprojects (up to says headmistress Wijdan Mango, who has the US and the World Bank, which have development. Last year the Bank also initiat­ $150,000) to PECDAR, which appraises and been teaching in Tel for 26 years. "And BANK'S W@}RID September 18, 1997 23 if, if, if ••• Palestinian private sector goes international encourage investment, which will provide jobs for Palestinians Last year Jabr Nabahin, a former in Palestine. Peace and the econ­ project director with the UN Relief and omy go hand in hand. Look at Works Agency, built a small factory near the Germans after World War II. his home in Wadi Gaza, a suburb of Gaza We must industrialize for peace. City. There, about 20 Palestinian work­ ers use European machines to apply rub­ Just look at Germany now! We ber strips, heat and pressure to old tires, need to minimize the need for making them "as good as new", accord­ outsiders to come in and give us ing to Nabahin, but at just 35-60 percent money," he stresses. of the cost of new tires. In the meantime, though, A few months after starting produc­ Shtayyeh hopes that the world tion, Matin Global, the only factory of its will not abandon the cause. "The kind in either the Palestinian areas or Is­ mission of the donors in Palestine rael, was running at double capacity yet is not yet complete," he says. was still unable to meet demand. "There is a time-frame for the Nabahin designed an expansion plan money, but the time-frame should and obtained $650,000 from the World Bank Group's International Finance be extended to aHow for a politi­ Corporation (IFC) - the world's largest cal solution. You can't leave mis­ "Goodbye, friend" ... "We will always remember you" ... Tributes, poems, and peace signs drawn by distraught Israeli youth at the Tel multil l ateral source of financing for pri­ sions half-finished." Aviv site where PM Yitzhak Rabin was assassinated in November 1995. vate enterprise in emerging economies - to make it a reality. Bassim Khoury runs Pharmacare, a pharma­ ceutical company in Ramal­ lah (West Ban k ) founded by many of them go on to university," she adds at the nOIthem tip of Gaza, health is a top pri­ The veranda episode was the catalyst for his father with a note of pride. She points out the four ority. The greater Jenin area is home to a hospital committee, which collected some in 1985. new classrooms, added through the employ­ 220,000, yet only one hospital - built in stone here, some wood there, and started to Not con- Making old tires as good as new ment generation program, and the science 1960, under Jordanian rule - is open for build an addition - the first in 37 years. "As tent with the relatively small market in lab. "I believe it is important for girls to learn business. "Others exist," says Dr Abu Ghali, soon as people saw that we were doing the West Bank and Gaza, Khoury is now math and science," she says. Mango also be­ the lone hospital's director, "but one has been something, that something was actually selling Pharmacare's products to lieves that a healthy mind lives in a healthy closed since '74, the other since '85 ..." Abu under way, the donations started pouring in," Ukraine, Belarus, Armenia and Yemen, body; the girls exercise regularly, and her Gbali, an affable man with a walrus mus­ says Abu GhaiJ i. The enterprising director and has his eye on Romania. study is decorated with plaques and trophies tache, is an Algerian-trained pediatric sur­ also raised funds by offering to honor donors With the help of $450,000 from the IFC they have won for various sports, including geon who returned to his native Jenin in 1993 with plaques in the hospital's corridors - an as well as funding from the Arab-Palestin­ ian Investment Bank and the French gov­ basketball and track. instant hit. The local vocational school ernment, Khoury is building a new factory For the residents of Tel, schools are the (which, incidentally, has also received help that will allow him to manufacture ac­ number one priority, followed by a clinic, from the Bank) volunteered student time to cording to international standards, in­ and then roads. Other villages set different build doors and windows. The hospital now crea~e efficiency, and almost triple his pro­ priOIities according to the needs they per­ has 68 beds (28 for children), and Abu Ghali duction capacity. Although this summer's ceive as most urgent. "It's a great example of plans to make it 107 in the near future. The closures have caused delays, the modern cooperation," says Wae) Hambali, a PEC­ hospital received $50,000 through the com­ building is nearly completed and Khoury DAR engineer who supervises donor-fi­ munity development project to add two - who is insuring himself against closures nanced building projects throughout the floors, and the community pulled together to by building housing for his workers next West Bank. "The viHagers decide what is raise an additional $100,000. Construction is door to the factory - is optimistic. most important for them; then we help them now under way. "The Palestinian private sector is like water," he says. "Somehow, we'll find a achieve it. The Palestinian Authority pro­ Abu Ghali flies through the corridors, way. You can build dams, insulation ... vides teachers or doctors or nurses. But the pointing out labs, operating rooms, oxygen but water always finds a way to continue people contribute, they participate. They supplies, and poking his head into rooms to its flow. I'll tell you one thing," he adds. own the project." offer brief greetings and reassurance to the "We're here to stay." The village of Eraq-Bourin, population three or four mothers standing, sitting, or Financing for Matin Global and 1,500, sits high up on a hill, accessible only lying on the floor beside their children's Pharmacare was made possible by IFC's by a narrow, winding road. According to a beds. The mothers are allowed, and indeed extended reach program, which provides welcoming note to this Bank's World reporter encouraged, to live in their children's rooms: financing for companies in countries from the village council, "Many govern­ "We have ordered some reclining deck where IFC's activity has been con­ ments ruled this country but they didn't give chairs for them, so they don't have to lie on strained by small project size, challeng­ Tel headmistress Mango with student's biology project ing country conditions and obstacles to us any important help, tin the Palestinian Na­ the floor," he says. "Tbere is a nationwide private-sector activity. Other possible tional Authority came; at this moment we to run the hospital. At the time, there were nursing shortage, so this is how we make candidates are a ready-mix concrete began to ask for help. [The community de­ only 55 beds, 10 of them for children. "It be­ sure the children get the attention they need." company in Nablus and a tourist devel­ velopment project] is the first project which came impossible," he recalls. "There were 45 Somehow, amid his supervising and di­ oper in Jericho. is established to help small children and par­ patients for 10 beds. I gathered up my papers, recting and fundraising, Abu Ghali still finds In the hope of jump-starting industri­ ents in this village." The village matched the my computer, everything, and got a tent, and time to use his gift: on any given Wednesday al development in Gaza, the IFC is also project dollar for dollar, raising $15,000 to moved out onto the veranda. I spent a month or Sunday, he perfomlS about nine surgeries involved - along ",ith the Bank, USAID, build a kindergruten and a clinic. working in that tent so that we could use my on children, mostly for congenital defects like the European Investment Bank and pri­ In the city of Jenin (population 100,000), office for patient beds." cleft palate. In his office, a simple room with vate developers - in the Gaza Industrial a bullet hole over the door ("Oh, that's from Estate. The estate, currently under con­ struction, ",ill provide well-located indus­ l eads development effort Bank ' '67," he says), he begins to list the hospital's needs when an employee darts in with an x­ trial space and infrastructure as well as a "closure-proof" environment for in­ The West Bank and Gaza have a combined land area of 6,000 square kilometers and ray of a baby's torso. He studies the x-ray for vestors. The Israelis and Palestinians are a combined population of about 2 million people. The West Bank accounts for 94 percent a moment, then: "OK, we operate this after­ working on a practical solution that of the land, but is bome to just 60 percent of the population. Tiny Gaza is one of the most noon." He explains: "Baby girl. Two days old. would permit the free movement of goods densely populated places on earth, with about 2,225 people per square kilometer (the US Lung," then continues with his "wish ust". and people to and from the estate, even has 29, France has 106, Bangladesh has 920). The combined population of the two areas "We have only one old ambulance. We need during times of closure. is expected to double by 2010. an elevator. We need an intensive care unit, "All parties are working together to The economy relies heavily on agriculture, which accounts for more than a third of maybe two beds. We need trained emergency­ achieve concrete results to boost the GDP while industry only accounts for about 8 percent. Unemployment is a serious prob­ room doctors for the 100 ER patients we get Palestinian private sector; this is a win­ lem, especially in light of border closures which prevent Palestinian workers from enter­ every day. We need a CAT scanner." A CAT win project," said Joseph Saba, the ing Israel. GNP per capita was $1,870 in 1995. Bank's country director for West Bank scanner? Isn't that a bit extravagant? Not at World Bank operations (including cofinancing) account for about a quarter of all and Gaza, last week from the Bank's of­ all, says Abu Ghali: "Sure, there's one in donor activity in the West Bank and Gaza. The Bank administers the Johan Jorgen Holst fices in AI-Ram. "I've been getting calls Peace Fund - the primary instrument for channeling donor support to the Palestinian Nablus, but when there are closures we can't an week from Israelis, Palestinians and Authority - on behalf of 25 donors, and has created a special trust fund to provide pro­ even get out of Jenin. Plus, with only one am­ donors saying, 'These are tough times, ject financing to the West Bank and Gaza on concessional terms; to da'te, $193.5 million bulance, I can't send it too far away." He paus­ but let's keep going.''' has been allocated to 11 projects. Another trust fund for technical assistance has dis­ es, then adds with a grin: "This is why we - Lauren Ptito bursed about $10 million. need our own trauma unit, too." 24 Sept.ember 18, 1997 Asian markets send strong cleanup message Capital flows By Kevin Rafferty official Toyoo Gyohten, who is chairman of the Institute of to Asia drop TOP WORLD BANK and Inter­ International Finance, the ~urbulence in the Asian cur­ national Monetary Fund managers club of the world's biggest rency markets is already taking its are understandably circumspect in banks, said that the Thai cri­ toll and reducing private capital public comment about the Asian sis "is the same kind of prob­ flows both to the region and to the financial crisis which has seen lem as the Mexican crisis, of world, says the Institute of Inter­ currencies and stock markets from too much dependence on for­ national Finance (IIF), the club of Thailand to Indonesia and Korea eign capital rather than on the world's biggest banks. It pre­ tumbling and ripples of nervous­ mobilization of domestic dicts that "net private capital ness spreading to Japan and resources. The combined result is imbalances that had been mount­ Bank vice president responsible flows to major emerging market beyond. But the message from big a large deficit, a very fragile finan­ ing for some time. for East Asia, offered a sense of economies are forecast to be $261 bankers in the region is loud and cial system and mishandling of "As in the Mexican case, confi­ perspective. He acknowledged billion this year," or down by $20 clear ­ the problems in the Asian their economic policies. It explod­ dence will only be restored when that: "Exchange rates have been the governments concerned have billion from their peak last year. markets are not as damaging as ed as a result of the rapid appreci­ adjusted in Indonesia, Malaysia, When the forecast flows are those of Mexico in 1994, but they ation of their currency, which hurt convinced investors - and others the Philippines and Thailand, with examined by region the damage are a warning to governments to ex ports and created a large current - that they are willing to make the pressures on other currencies. difficult adjustments needed to sta­ Thailand is experiencing a large­ of the Asian crisis is clearly clean up their systems and pursue account deficit. The domestic bilize the economy. By reaching apparent. Private capital going to sounder financial policies. economy has experienoed the typ­ scale crisis, and broader concerns the Asian emerging markets will Tasuku Takagaki, president of ical aftermath of the bursting of agreement on an IMF-sponsored over weak financial systems res­ program the Thai government took onate from Japan to Vietnam." fall fr.om $142 billion to $107 bil­ Bank of Tokyo-Mitsubishi, the bubbles. All these things dealt a lion, the UF predicts. Latin Amer­ world's largest commercial bank, heavy blow to external confidence an important step in that direction." But "the World Bank's view is ican economies will also see a told Bank's World that the Thai cri­ and money started to run away. Rubin also criticized the actions that in many dimensions, such as of countries that thought they could macroeconomic management, sav­ fall, from $91.4 billion to $83.3 sis was uncomfortably like "what The government made a serious billion, but both Europe and the happened to us in Japan. The very mistake of trying to contain things remedy their policy problems by ings and investment and depth of attacking speculators or imposing Middle EastINorth Africa regions important first step has been taken by controls, and it took them some international economic integration, will experience an increase. now that the IMF package . has time to discover that these con- controls. "As I have said, Thailand's the region enjoys advantages that problems grew from a failure to The damage caused by the been put in place, but are lacking in countries elsewhere Asian crisis is even more obvious, what has happened is an address mounting macroeco­ that have experienced deep eco­ nomic imbalances, not the nomic or financial crises," he added. IIF says, when it is considered indication of rather deep actions of speculators. Investors, Kurosawa of IEJ asserts that that "the financial environment in domestic problems, whether foreign or domestic, boosting domestic savings rates the industrialized countries has which will take some respond when governments are and developing sound financial remained generally favorable for years to sort out." unwilling to adjust their policies and capital markets are the best capital flows to emerging market Yoh Kurosawa, chair­ economies. Relatively low inter­ man of Industrial Bank of in line with the fundamentals remedies since they offer foreign est rates in industrial countries Japan, added his fears of a and that can make things uncom­ investors the true test of confi­ have contributed to ample global contagion effect, especial­ fortable for these policy-makers. dence in a market ­ that its own But if we've learnt one thing people believe in the future. supply of capital." ly spread by the nervous­ from the past few weeks, it is Of the total inflow, more than ness of foreigners reluc­ Both the Bank and Fund have that you can't reduce that risk emphasized I the need to improve half - $136.2 billion - is tant to distinguish through capital controls of limits tinancial systems, not just in Asia. accounted for by equity invest­ between countries with problems and those with Kurosawa: contagion effect on equity trading. Furthermore, ment. IIF expects foreign direct Wolfensohn will tell finance minis­ investment to rise slightly to $96 sounder policies, such as Hong trois were useless." measures that target speculators ters that a considerable number of billion this year, thanks to a rise in Kong. He agreed that "It may take Robert Rubin, the US treasury actually make it more difficult for financial systems around the world direct investment in Brazil, helped two to three years for the Thai econ­ secretary, also urged the impor­ countries to attract the foreign capi­ "need heart surgery, not orthopedic tal they need Ito sustain growth." by that country's privatization pro­ omy to recover because not only tance of sound economic policies. surgery." The difference, he will Bank president James Wolfen­ explain, is that in orthopedica, if gram. This, says IIF "should more was the baht overvalued, but they He told Bank's World: "The situa­ than offset a decline in foreign are having to cope with the bursting tion in Thailand and throughout sohn predicted that East Asia you mess it up, you can have a sec­ would recover and the "ricochet investment in China, which of the bubble economy. The stock the region is still being played out; ond chance, but with heart surgery appears to have peaked. Neverthe­ market has fallen in 18 months to it would be wrong for me to draw effect" following the Thai currency there is only one opportunity. The less, foreign direct investment in 36 percent of the peak and land definitive lessons or comparisons crisis would disperse. People are Bank has promised to make such taking fright...Wherever there is a financial heart surgery one of its China remains by far the largest prices have fallen sharply. They with other crises at this stage. But storm going on, it looks bleak. But priorities. Its lending to Mexico's for any single economy at $36 bil­ have a huge bad loan program in the problem at the root of the Thai I believe the fundamentals of the lion in 1997." Portfolio equity non-banks, similar to Japan's jusen crisis was similar to that in Mexi­ financial system after the 1994 cri­ investment is rising and expected [housing loan corporations]." co ­ a reluctance to adjust policy region are very sound." sis has helped to restore that coun­ Jean-Michel Severino, the try's banks to better health. to reach $42 billion this year. Former top Japanese finance in the face of macroeconomic The turmoil in Asia appears to have badly hurt bankers' confi­ Genuine Tung HONG KONG CE SEES EVER BRIGHTER FUTURE dence since the institute adds that David K wok-po Li, chairman "virtually all the slowdown in pri­ TUNG CHEE-HWA, Hong Kong's success story is not one democracy in Hong Kong, declar­ vate capital tlows to emerging mar­ and chief executive of the Bank of Kong's chief executive (or CE as about luck but about Hong Kong ing that, 'The Basic Law sets out ket economies that we expect this East Asia, the largest of Hong Kong's local banks that is not he is universally known) told people's tenacity to advance. To the pace of democratization in year is likely to occur in lending by OmIed by China or a foreign bank, Bank's World that the choice of meet the challenges ahead, we are Hong Kong. It is a document banks", expected to fall to $44 bil­ said that so far, the new Hong Hong Kong as the venue for the vigorously upgrading our human drawn up for Hong Kong's condi­ lion from $84 billion last year. Kong system was working well. Li, 1997 annual meetings "reflects resources and our physical and tion, providing stability in the orga­ -BW Reporter who is one of the few people who international confidence in Hong economic infrastructure. We are nization of our government while were members of the old colonial Kong and underlines our role as determined to maintain Hong maintaining the steady evolution of legislative an international financial center. Kong as a premier international democratic institutions. Under its BANK'S W~RID council and This is a strong message of sup­ financial center with a top-class guidance, for the first time ever, the World Bank Group also of the new port for me, as the first chief exec­ workforce and state-of-the-art 1818 H Street, NW people of Hong Kong have been Washington, DC 20433 provisional utive of the Hong Kong Special technology to face the challenges able to select their own leader. Next Phone: 473-2211 Fax: 522-2477 council, added Administrative Region (SAR), of the next millennium." year, elections for the first full leg­ that Beijing was not inter­ and for the people of Hong Kong. He praised the economic links islative council will be held. Mem­ Editor Kevin Rafferty ''Two and a haJlf months ago, between Hong Kong and the main­ bers of every political party are Assistant Editor Lauren Ptilo fering in Hong Production Editor Kuniko Kurimura Kong affairs. Hong Kong enjoyed the focus of land: Hong Kong is a major con­ welcome to take part, every adult Design Editor Alex Tuller "China has basically teft Hong international attention when we cel­ tributor to, as well as beneficiary permanent resident eligible to vote. Kong alone. 1 don't see any hidden ebrated our reunification with of, such a development. The main­ Those elected will serve for two Contributors hands or hidden agenda." China and the establishment of the land is now Hong Kong's largest years. In the year 2000, the second AI Dralle1l, Tony Gaeta, Phil Hay, He also expressed his respect Hong Kong SAR. The historic trading partner. In 1996, the two­ legislative council will be elected Geoffrey Lamb. Crislina Mejia. for the chief executive: "I know John Mitchell, Rebeca Robboy event filled Hong Kong people with way trade grew by 6 percent to for a four-year tenn, and in 2004, Thng Chee-hwa because he has pride and confidence. Pride because HKD1,050 billion. In the first five for the third election, half the seats BUTlk'.< World is a publication for the stall of the been my neighbor for 20 years. He Hong Kong is at last re-united with months of 1997, the increase was 5 will be returned by direct elections. World Bank Group and is published by the vicc-pres­ is a very genuine man. He means idency for external affair.;, The views e"pres~ in China. Confidence because we percent. With increased opening After ten years, the BL makes it well and I don't think that he is Bwrk '.I' W,,,/d arc those of its writers and do not ncc­ beholden to anyone. He wants to know that under the principle of up and on-going economic reforms clear that it is for the people of e"arily refl~<:t the ",,,itiol1 of th~ World Bank Group, the members of its board of executive direc­ go down in history as someone 'one country, two systems', Hong in the mainland, a further expan­ Hong Kong to decide how to devel­ tors, or the countries they represent who has done something for Hong Kong will be an even better place to sion in Hong Kong - mainland op the executive and legislative BUllk \ WrJ/-td reserves the right to cdit all anides before publication. Kong and for China, in that live and to do business." economic links is expected" elections, with the ultimate aim of order." The CE added that: "Hong The CE defended plans for universal suffrage.