62243 March 2011 – Number 37 THE EVENTS IN THE ARAB WORLD, THE RECENT GLOBAL CRISIS, AND THE WORLD BANK GROUP Sri Mulyani Indrawati 1 Central and East Asia. Here again the Bank stands ready to support the authorities in Introduction: This Quick Note is to provide the region in designing smart ways to the reader with a perspective on how the respond to the needs of their youthful World Bank Group has been challenged by populations. and has responded to recent global crises. However, at this historical moment, one The Global Crisis and MENA: In addition cannot begin to write of global or regional to the ongoing political turmoil in the issues without noting the momentous region, this is a time of continuing stress in events that are now sweeping across the the global economy and, as recent events Arab World. Every country is different, but show, exceptional stress in the regional common themes are emerging. The youth’s economy of the Middle East and North messages are loud and clear: they want Africa. One source of continuing voice, employment, social and economic vulnerability is the uncertain pace of inclusion as well as good economic recovery from the global financial crisis governance and sound institutions. that started in 2008. A second source is the return of high food prices. Both of these No doubt, the loss of life, notably in Libya factors, and especially the latter, have now, is tragic and the World Bank joins its serious implications for the MENA region. voice to others in the international This Quick Note will be mostly about what community urging an end to the violence. the World Bank has done and proposes to These turbulent times remain however rife do to help the global and regional economy with opportunities to tackle old challenges cope with the stresses and the transition and reshape the economic landscape of the that I have just mentioned. Arab World in favor of growth, diversification, innovation, inclusion and Global Crisis and World Bank Response: good governance. The food, fuel and financial crises that began in 2008 had severe consequences for MNA and the World Bank: While it is too the global economy. Growth and trade soon to understand the realities that will were strongly affected. In 2009 the GDP of emerge out of these political events, we high income countries contracted by 3.3% must take this unfolding political change while that of developing countries barely into account as we ponder the short and grew. At the World Bank, we obviously long run economic prospects for the region. focused on the impact of such events on the The World Bank has long experience in poor and our estimates suggest that 64 supporting countries through transition - million more people were pushed into from Latin America to Eastern Europe and extreme poverty in 2010 due to these crises. In such circumstances much was expected 1 Managing Director, The World Bank. This Quick Note is from the World Bank Group (WBG). The based on a speech given by Ms. Indrawati at the Saudi response was rapid. Since July 2008, the Economic Forum on March 2, 2011. WBG has provided $152 billion to our members in loans, grants, equity and from the Program and $1.1 billion had been guarantees. Of this, more than $96 billion disbursed. The funds are used to feed poor has been disbursed – more than any other children and other vulnerable groups, to multilateral institution, including the IMF. give nutritional supplements to pregnant women, lactating mothers, infants and In FY2010, the WBG continued to provide small children, and to help defray costs of record levels of financial resources, additional food imports. To date, some 40 technical assistance, and knowledge in low income countries and over 30 million support of developing countries. A total of people are being helped through this $44.2 billion was committed in IBRD funds, program. up from $33 billion in 2009 and $14.5 billion in IDA commitments, a 3.5% increase from This program was designed to be a rapid 2009. The WBG’s private sector response to short term needs. In addition, development arm, the International Finance there is a need for longer term measures to Corporation, provided $12.7 billion in enhance food security for all countries. At investments, a 21% increase, with an the country level, these measures comprise additional $5 billion mobilized from other both investments and policy reforms. The sources. Almost half went to IDA policy issues are complex and require recipients – 255 projects totaling $4.9 careful deliberation and attention to detail. billion. Finally, the Multilateral Investment Guarantee Agency, MIGA, provided $1.5 Food Security and MENA: Food price billion in guarantees, up from $1.4 billion in surges are a matter of special concern for 2009. MENA because the region is heavily dependent on imported food. For example, World Bank assistance focused not just on 58% of cereal and 75% of sugar long term infrastructure investments but consumption there is accounted for by also on safety net programs involving imports. These two food groups have school feeding, cash for work, and general experienced sharp price rises of 40% for social assistance. A new Global Food Crisis cereals and 77% for sugar in the last six Response Program was started to target months. Calculations by World Bank staff support to poor countries most affected by suggest that price increases in 2010 for rising food prices. these two food groups alone necessitated additional expenditures of $19 per person The Food Security Challenge: Food prices (or 0.3% of regional GDP). soared in early 2008 and then retreated to a lower level for more than a year. In recent Of course, this is an average. Some months, they have risen again to very high countries and some households are far levels. Since food comprises the largest more vulnerable to such price increases fraction of the expenditures of poor people, than others. At the country level, this is a critical matter for the World Bank vulnerability is a function not only of as a poverty-focused institution. It is also a dependence on imports but also on critical matter for countries, including available fiscal resources. Countries with many in the MENA region, that import a fiscal surpluses, such as the Kingdom of large fraction of their food consumption Saudi Arabia, do not face the same degree needs. of vulnerability as countries like Yemen, Tunisia, Lebanon, Djibouti, Jordan and The Global Food Crisis Response Program Bahrain. in May 2008. By April 2009, the size of this Program had increased to to $2 billion and The Bank and Food Price vulnerability in special procedures were adopted to MENA: What is the Bank doing to help expedite commitment and disbursement of reduce vulnerability to food price surges? funds to needy countries. As of January The Bank recommends a three pillar 2011, $1.44 billion had been committed approach to the challenge: March 2011 · Number 37· 2 area increased from $0 in FY2008 to $359 The first pillar consists of strengthening million in FY2011. Globally, our lending in safety nets so that people with low this sector has grown from an average of $3 incomes do not have their access to billion per year during FY06-08 to $4.7 food severely impaired when prices billion during FY09-10. The goal is to rise. In general, this involves better increase lending in this sector to some $6-8 targeting of existing cash and in-kind billion a year in the medium term. support programs and using the freed- up resources from better targeting to In addition, in April 2010, the Bank expand the benefits available to the established a new Global Agriculture and truly needy. The Bank has used the Food Security Program at the request of the resources of the GFRP to strengthen G-20. This program supports country-led safety nets in Yemen, Djibouti and agriculture and food security plans and West Bank/Gaza. aims to help smallholders in particular. This program is being funded in part by the The second pillar consists of enhancing Bill and Melinda Gates Foundation. domestic food supply by focusing on Approximately $925 million have been agricultural productivity and yields. In raised so far and $321 million disbursed. practice, this involves increased investment in R&D and more efficient The Role of the Private Sector: So far the management of water and arable land, focus in this note has been on an outline of both scarce resources. The Bank is selected public sector actions and plans for helping some MENA countries along enhancing food security. However, an these lines with financial and/or important role can be played by the private technical support. Examples include a sector as well. In particular, private sector Farm Irrigation Modernization Project investment is critical on both the in Egypt and a Rural Development production and distribution sides of the Support project in Djibouti. food security equation. Here, note should be taken of the efforts being made by the The third pillar consists of reducing Saudi private sector. Saudi investors have exposure to market volatility by been actively seeking opportunities to improving supply chain efficiency and invest in farms in several countries as well better management of agricultural risk. as in storage and distribution facilities. In practice, this involves country level This is a worthwhile effort. diagnostic studies of agricultural supply chains followed by investment However, large scale commercial and policy measures to address investments in farming in low income inefficiencies. The Bank is working countries must be mindful of several closely with 10 Arab countries on a challenges. Foreign investment often diagnostic study for wheat import provokes local anxieties. These are even supply chains. It is expected that the greater when the investment involves land study will lead to recommendations and the potential export of food and other pertaining to investment in critical agricultural outputs from low income infrastructure such as strategic grain countries. This is why the media often reserves, port facilities and roads. conveys a hostile perception by local populations to corporate farming ventures The food price shock of 2008 was a wake- by foreign investors. up call not just for specific countries but also for the Bank. In its aftermath, we However, such perceptions are not an havve devoted additional financial and insurmountable barrier. Responsible agro- technical resources to improving food investment is a definite possibility and the security. For the MENA region, lending in World Bank can help in making this the Agriculture and Rural Development happen. The World Bank is capable of March 2011 · Number 37· 3 playing a multi-faceted role in facilitating private foreign investment. It advises Contact MNA K&L: Emmanuel Mbi, Director, MNA Operational governments on policy frameworks to Core Services Unit attract and retain foreign investment and it advises the private sector on corporate Regional Quick Notes Team: governance standards that reduce the Omer Karasapan, Roby Fields, and Hafed Al-Ghwell potential for abuse and exploitation. In Tel #: (202) 473 8177 addition to this advisory role, it facilitates MENA K&L Quick Notes: http://www.worldbank.org/mena-quicknotes private investment through loans and The MNA Quick Notes are intended to summarize equity participation by the International lessons learned from MNA and other Bank Finance Corporation. And, where Knowledge and Learning activities. The Notes do necessary, it reduces political risk by not necessarily reflect the views of the World Bank, offering guarantees through the its board or its member countries. Multilateral Investment Guarantee Agency. These instruments of the World Bank can be deployed to support responsible private foreign investment in the food production and distribution sectors of low income countries. Conclusion: We confront important economic challenges in the world today. This Quick Note has described how the World Bank has responded to the global economic slowdown and the food security problem. The task ahead of us is still daunting and it will take the combined efforts of international development agencies, national governments and the private sector to secure a sustainable and prosperous future. The WBG stands ready to work with all of our partners to achieve this. March 2011 · Number 37· 4