The world according to Robert Zoellick
Right before this year’s World Economic Forum began, in a wide-ranging Newsweek interview, World Bank President Robert Zoellick gave detailed answers about his outlook for the year, the challenges that lie ahead and the struggles the world is currently facing ranging from the volatility of food prices to gold to unemployment to climate change.
Back in January, rising food prices were becoming a big concern, and when Zoellick was asked, “What is the biggest challenge facing the developing world in 2011?” he said it was “the risk of a big boost in food prices.” That issue could be addressed, according to Zoellick, by increasing food production in the developing countries and by lending more to smaller farmers. And the World Bank has a large role in that. It set up a Global Food Crisis Response Program (GFRP) in May 2008 to help the countries “hit hard by high food prices.” The Bank also manages a Global Agriculture and Food Security Program and is is increasing its investment in agriculture to around $6-8 billion a year. On their website, the Bank’s “Hunger Clock” estimates that there are over 935 million people worldwide that are undernourished. And their February 2011 Food Price Watch report says that since June 2010 there has been a net increase in extreme poverty of around 44 million people because of the spike in prices for basic food such as grains and sugar.
But the “most contentious economic issue this year” is not food prices, it’s the flow of money and how it will be affected by exchange rates for currencies, potential volatile shifts in capital and domestic monetary policies. Those three money channels could increase protectionism in trade, nationalism and export bans of agricultural products could affect — none of which would help the world economy.
What has helped the global economy recover from a financial meltdown are the developing countries such as China, India and Brazil. “In fact,” says Zoellick “a key difference between this downturn and past ones is that developing countries stepped up to fill the gap.” Zoellick says these “developing economies provide an important source of demand for exports from developed countries.”
China, in particular, has gained quite a lot of economic traction, which has also led to increased currency tensions between China and the U.S. In order to reduce such tension Zoellick says China need to increase domestic consumption and lower savings and the U.S. needs to do the reverse.
Currency wars keep rearing their heads, but Zoellick does not think that they will lead to a return to the gold standard or the Bretton Woods system, where all participating countries tied their currency to the dollar. While Zoellick believes the dollar is still dominant he does not think it will be the exclusive currency. Instead, “this world economy is likely to evolve toward multiple reserve currencies,” Zoellick says.
As for other emerging markets to watch out for Zoellick has his eye on Africa and pinpoints sub-Saharan Africa in particular, which outpaced the 2010 increase in global output in 2010 by .6 percent.
You can read more of Zoellick’s Newsweek interview and find out what he had to say about unemployment and climate change here.
Photo: A vendor arranges vegetables next to a parked road roller on a roadside in Kolkata March 31, 2011. India’s food price index rose 9.50 percent in the year to March 19, government data on Thursday showed. REUTERS/Rupak De Chowdhuri