Washington: On the seventh floor of an office building near the White House, dozens of traders are sitting at computer terminals, studying global trends in currencies, commodities and interest rates, looking for ways to maximize returns for one of the world’s biggest money market funds.
But this is the trading floor at the World Bank, best known for tapping government coffers to fight poverty. Less well understood, the bank also oversees $55 billion (Rs2.1 trillion) in readily tradable assets in its own portfolio and those of governments and groups that have asked the bank to manage their assets.
Robert B. Zoellick, World Bank chief
The bank employs modern Wall Street hedging techniques such as currency and interest rate swaps to protect its own funds. Increasingly, it also helps poor countries by supplying risk-management services or acting as a partner in their hedging activities.
Now, Robert B. Zoellick, president of the World Bank since July, wants to expand these efforts further to help poor countries make their money work harder, supplementing its traditional programmes to fight poverty and wretched living conditions.
This week, Zoellick will be outlining his priorities when he meets finance officials from around the globe in Washington at the annual meeting of the World Bank and the International Monetary Fund. Bank officials say his mission to leverage the bank’s capital by sharing its risk-management skills and increasing lending to so-called middle-income countries such as China and India and the private sector will be a highlight of his debut on the international stage.
“I want us to be better partners with our clients by offering financing services and knowledge services so they can develop their own markets and their own expertise,” Zoellick said. “We’ve got the capital at the World Bank, and we can leverage it more effectively.”
When three provinces in Colombia, for example, borrowed dollars from the bank, they entered into a currency swap with it to protect the value of their loan for projects that had to be paid in pesos. The bank is using such swaps to make it easier for many countries to set up bond markets in their own currencies.
Since taking office, Zoellick—a former Goldman Sachs executive—has called for the bank to do more in this area.
Critics say Zoellick is simply looking for ways to expand the World Bank’s role when he should be shrinking it and focusing on helping the poorest of the poor countries. “The bank should not be involved in lending to countries that can get credit on their own,” said Ian Vasquez, director of the Center for Global Liberty and Prosperity at the Cato Institute, a libertarian policy group in Washington. “In employing these risk-management strategies, the bank is displacing market actors. It should not be using taxpayer money—which is where the money comes from—for those purposes.”
Zoellick rejects such criticism as reflecting a misunderstanding of what middle-income countries want. “They want our financial services as well as our knowledge on poverty, energy, health and education,” he said. His efforts were also met with some scepticism at the treasury department when he laid out his agenda. One area he mentioned, officials said, was for the bank to provide disaster insurance to poor countries to protect against floods or drought.
According to bank and treasury officials, there were some concerns that the bank would be competing with big commercial and investment banks that offer these services.
Zoellick said the bank was going only where the private banks were not ready to go.
“This idea of competing with the private sector is more theoretical than real,” he said.
Many investment bankers agree, saying that even if private sector institutions lost business to the World Bank, they would more than make up for it in the long run once countries are weaned off the World Bank’s aid. “I would say, ‘More power to you, Mr. Zoellick’,”said Antoine van Agtmael, chairman of Emerging Markets Management, a consulting firm. “I have heard that some investment banks are whining about losing business. What they should think about is the new business that the World Bank is creating for them in the future.”
©2007/The New York Times