Remarks at the Conference on Development Banking Institutions into the New Millennium 99978 by

Remarks at the Conference on Development Banking Institutions into the New Millennium


99978

by

James D. Wolfensohn

President

The World Bank Group

Mexico City, October 25, 1999
Mr. Chairman, President Carlos Sales, Secretary Gurria, President Iglesias, Governor Yasuda and Ladies and Gentlemen:
As you would have seen from the program, this first session is to deal with the questions of multilateral development institutions and, if you like, our view of the world. In the coming days, you will move from that level of generalization to broader considerations and more particular considerations of the role of development banks, their support of small and medium-sized enterprises and finally, to an examination of the distinguished history of Nafinsa, your own leading organization, within this context.
Before I give you some comments on the view from the multilateral institutions, let me, however, first say that we, along with all of you, are deeply concerned by your recent natural disasters in the floods. I want to express on my own behalf, and on behalf of all my colleagues in my institution, the sense of solidarity that we feel at this very difficult time for you and say that we are certainly with you at this difficult moment. I also for the record would like to wish you a happy birthday, Mr. President, for the 65th birthday of Nafinsa and say what a remarkable experience we have had in working with your organization over many years and how much we look forward to continuing that.
Let me start with the way things look to us at the Bank from a global perspective. As we approach the question of Nafinsa, or indeed development banks in any part of the world, what is very clear is that national issues and international issues have fused and become part of the same global entity. It's been clear in terms of the recent financial crisis, that the financial markets are linked. In Mexico, you know this better than most people. It's very clear that we are linked in terms of environment, it's clear that we are linked in terms of migration, in terms of crimes, in terms of drugs, in terms of health, that very simply, all these issues, including trade, bring us very close together. And so, as we look at the questions of Nafinsa or indeed any development institution around the world, the issue of linkage with global forces is very clear.
Second, it is clear that if you look at global forces, you'll see reflected in the global issues many issues that resonate in your own country. I start with the assumption of a world which now has six billion people, and of that six billion people, three billion live on under $2 a day and 1.2 billion people live on less than $1 a day, in what we call absolute poverty. And this, of course, is reflected in Latin America, where of a total population of 494 million, about 170 million live in poverty, with about 70 million in absolute poverty.
Within this group, there is a trend towards greater inequity, a trend towards the rich having more and the poor having less, with consequent social tensions where ever that is found in the world. Then we look at the future, and we see that in the next 25 years, the six billion will be eight billion and the real question is: What will happen with the extra two billion? Most of that two billion, we know, will live in cities and towns. There will be a movement from the country to more concentrated units in megacities and in towns. What we don't know is how many of the two billion will live in poverty and how many are going to break out of it. But, if current trends continue for another 25 years, in terms of the relationships between governments and multilateral institutions, private sector and civil society, we know that the three billion people living under $2 a day will approach four billion and the 1.2 billion in absolute poverty will probably grow by another 300 or 400 million.
This is not a Hollywood presentation, this is not a statement by someone who's trying to attract attention, these are the facts of the demographics. The issues of poverty and equity confront us starkly in our world and starkly in this region. They confront us because of moral and social issues, but also because of issues of peace, tranquility, growth and the need for harmony.
We have just done a study of 60,000 poor people in 60 countries to try and see what the world looks like from the views of poor people. The studies were fascinating. First of all, poor people around the world have no confidence in government. Secondly, they feel they have no voice; they have no protection. They regard police as an instrument of brutality, not of protection. Broadly, they feel no protection from the legal and justice system and they feel that they do not have voice. The women feel that they have an increasingly bad time, in terms of violence and lack of opportunity. This is the picture from 60,000 people that we've interviewed.
But what is also interesting is that the poor are now getting more information. There is greater communication, they have a better understanding of the opportunities and inequities, and this creates a sense of tension, because poor people are no different than any of us in this room. My best experiences have been in slums and villages. The people there are the same as we are: they have a sense of family, they want to have well-being, they want their kids to have opportunity, they want a peaceful life, they want protection and they want the opportunity to break out of their condition. Typically, they don't want charity. They want a chance. And here, the role of the state, the role of microcredit institutions, of development banks in terms of small and medium size enterprises, becomes an exceedingly important element in the creation of opportunity, an exceedingly important factor.
And then there is another change. The other change is that as you look at the structure of the globe in which we are operating, twenty-five years ago, or even 10 years ago, you saw the solution within the context of government funding and overseas development financing. Ten years ago, the net flows of funds from overseas development institutions globally was around $60 billion a year. At that time, private sector flows to developing countries were half that, at $28 billion a year. Within seven years, the private sector flows to the developing countries grew to $240 billion. Meanwhile, the flow of public funds dropped from $60 billion to $45 billion. So you had a complete inversion, from the private sector accounting for half of the size of official investment to being five, six or seven times the size. There was a reduction in private flows last year as a result of the crisis, but still, direct investment in developing countries from overseas was over $100 billion. And for every dollar invested from abroad, three or four dollars, on a global basis, were invested locally. This changes the role of the private sector, as a creator of jobs, and as a social instrument in building stability in society.
If you read the most recent annual report of Nafinsa, you will see that it imposes very interesting opportunities and obligations on development institutions to try bring more and more people into the private sector, with training and finance and outreach, to stimulate their participation. That is the future, if we are to build jobs for that extra two billion, or build opportunities for that six billion already on our planet.
There is not much difference between the global situation and the realities of this country and Latin America. There is in all of them the need for opportunity, the need for reaching out, the need for finance, the need for capacity-building, and the need for greater emphasis on moving into the next generation in terms of technology.
I have just come from Seattle, Los Angeles and San Francisco, where I was in the high-technology areas. It is like being on another planet. One sees there a deep involvement in the issues of the next millennium, or even of the next 25 years, a change in focus, and the opportunities that technology offers as well as enormous challenges for the private sector. I saw Bill Gates of Microsoft, and I have seen those who live in Africa or who live in developing countries. Unless that gap is bridged, unless we can maintain a balance in terms of technological advances, there is no doubt that inequity will deepen. It will be a technological inequity.
One thing that we might suggest that Nafinsa or Monterrey Tech or other institutions in this country might do is to take a central role in ensuring that, as we come to the end of this millennium and into the next one, that we don't just think in terms of money and capacity-building in a traditional sense. We have to think instead about making the jump to the new technology and the new type of society that is coming down the pike. This is not a trivial issue for Mexico or for any country. This is an issue of being able to compete. It is an issue of opportunity, of allowing people at each level to have mobility.
The fourth issue which changes the way we look at the world, from one involving simply states, international organizations and the private sector, is the emergence of civil society. The emergence of non-governmental organizations, of speaking out in public, the emergence of those who share responsibility is significant. In your own country, you are going through a remarkable experiment at present, in terms of sharing responsibility, of sharing decision-making that might previously not have been as open. This is a global trend, and it faces us with issues of how one links, not just the multilateral organizations with the government, but the multilateral organizations with government, civil society and private sector in terms of establishing a set of objectives, in terms of establishing some balance in the society. Because that is now demanded, it is not just a happenstance in Mexico. It is a global trend. We need to adjust to these new methodologies, and we need to adjust to them, going beyond thinking of government as the President of a country. The government consists of the President, his ministers, a Parliament, provincial governments, state governments, city governments. Government is now becoming more decentralized, requiring a different sharing of responsibility and balance. That's another new development, from the point of view of the multilateral institutions.
So, we face many changes. We are trying to synthesize what will allow us to work in this new environment and we've concluded, at least at the World Bank, that there are fundamentals which one needs to address for anything to operate. You have to have good and clean governance. You have to have decent capacity in government. You need a legal system that is comprehensive, that works. You need an honest justice system; people need protection from honest judges. You've got to have a financial supervisory system that works in banks and corporations. You need transparency in corporations. You need a social safety net to help those who fall out of the economy. You need to have a confrontation with the issue of corruption. I say those things because they apply to all states. If you don't confront the structural issues, thinking that you can go ahead with education programs, or state programs of development banks, or any other state institution, is just kidding yourself. You have to confront, in country after country, the issues of state organizations, the issues of governance, the issues of integrity, the issues of corruption, the issues of capacity. These are necessary preconditions to being able to move forward. If you don't deal with the fundamentals, we can try a lot of things but they will drift; there will be a hole in the boat. These are fundamentals of the things to which we in the Bank are directing our attention.
Here in Mexico, you have so many things going for you. You've been one of the fastest-growing economies in the region. You have strong trade patterns. You've got an intelligent people, a well-educated people. You have problems, of course, in terms of poverty, and in terms of equity, but they are soluble problems. You have the capacity and the resources to face them. You have people in government who understand the issues and who can face them, head on.
The future of Nafinsa, like Mexico's future, is in your own hands. You don't need help from outside. It's a good moment, at 65 years, to reflect on your priorities. I simply want to say to you that so far our institution is concerned, we are enormously anxious to be of service. We know very well the quality of your leadership and there is no way that we can, or want to impose our perceptions on you. I know that one can look with a real sense of confidence at your future and that of Mexico. I for my part and my colleagues in the Bank look forward to working with you for the next 65 years and more.