Income inequality is threatening the stability of countries from Egypt to Brazil and should be a growing concern to global leaders, World Bank president Jim Yong Kim said in a recent interview.
Kim, a former Dartmouth College president, became World Bank president last year, and has made tackling economic inequality one of the international development organization’s primary goals. The World Bank has promoted economic growth in developing countries throughout its nearly 70-year history, Kim said, but it also needs to ensure that prosperity is shared among the people of these nations.
“What we’ve seen all over the world is that if you don’t pay attention to that bottom 40 percent, you can have fundamental instability in your society,” Kim said, pointing to the popular movements of the Arab Spring and this past summer’s mass protests in Brazil over inequality. “Even in countries that have made so many gains in lifting people out of poverty, the bottom 40 percent were still saying, ‘But wait a minute, we want more.’ ”
Kim was in Boston Thursday to accept an award from the Harvard School of Public Health. A physician by profession and cofounder of Partners in Health with Paul Farmer and others, Kim was a surprise choice to lead the World Bank. The bank’s past leaders have included bankers, politicians, diplomats, and former defense officials.
The bank, which provides low-interest loans and grants to developing countries, was established in 1944. Last year, it lent $53 billion with the United States providing a large bulk of the funds. While the bank has 188 member countries that act as shareholders, the United States holds the most voting power and traditionally selects the bank’s president.
Kim, a Korean-American, is 15 months into his five-year term and has promised to restructure the organization as it works to end extreme poverty by 2030. About 21 percent of the world’s population lives on less than $1.25 a day; the World Bank’s goal is to cut that to 3 percent.
“It’s a huge task,” Kim said. “For us, in setting the target of 2030, we knew business as usual wouldn’t get us there.”
As part of the bank’s new strategy, it will focus on creating more partnerships between government, business, and private development groups and investing in large “transformational” efforts instead of smaller pilot projects. For example, Kim said, the World Bank needs to undertake more projects such as building an electricity grid in Myanmar to show nascent democracies that there are financial benefits to opening up their governments.
Kim also sees a role for the World Bank in helping rapidly growing Brazil, Russia, India, and China — commonly referred to as BRIC countries — balance the health care needs of both their expanding middle- and upper-middle classes and their more rural communities.
Many of these countries are experiencing an “epidemic of hospital building,” investing in expensive equipment and new facilities to meet the demands of well-off, urban residents, while struggling to provide basic health care for citizens who live far from major cities, Kim said.
“I’m trying to bring, more than anything else, a sense of urgency” about addressing such disparities, he said.
The World Bank is being forced to adapt as global charitable organizations, such as the Bill and Melinda Gates Foundation, take on a greater role financing roads, schools, and hospitals, diminishing some of the bank’s influence. But, Kim said, the challenges of lifting millions of people out of poverty are so great, they require the efforts of both public and private groups.
“What we now understand, is that official development assistance can’t meet the needs of all these countries,” he said.
Despite the emergence of China and other nations, the United States continues to play an outsized role in the global economy, especially among developing countries, Kim said. During the recent federal government shutdown and debt ceiling debate, Kim urged Congress to end the stalemate because of potential dire consequences to poorer countries.
After the United States almost defaulted on its debt in August 2011, the cost of borrowing in developing countries rose and stayed elevated for months afterward, Kim said.
Many of these countries and their markets have already been shaken by anticipation that the Federal Reserve will soon back off its $85 billion-a-month bond purchasing program, which has kept interest rates low in the United States. Investors, who had poured money into developing countries in recent years, started to pull their money out this past summer in anticipation that they would get better returns in the United States.
The recent weak US jobs reports and the drag on the economy from the government shutdown and debt ceiling debate likely mean the bond-buying program will continue for a little longer, Kim said. The World Bank has encouraged developing countries to make structural changes to their economies and bring down their own debts, which could help buffer against Fed tapering and rising interest rates.
“We think every time there is a delay of the tapering, this is good news for developing countries,” he said. “We’re telling them, you’ve got to move now. Don’t just wait until you see what the US does.”