World Bank proposes multilation

The coordinated provision of liquidity by major central banks since last year, the additional efforts made more recently and the decision of the international community to adopt the Shortterm Liquidity Facility to more quickly mobilise largescale financing from the IMF, are just some examples.

In the wake of the financial crisis it is imperative that donor countries meet their Gleneagles commitments, reach an agreement on the World Trade Organisation's Doha trade round, and follow through on the Bali commitments on climate change.

A vigorous crisis response can set the stage for a new multilateralism. There is a mismatch between 20th century global institutions and 21st century global challenges. The G7 group of industrialised countries is no longer sufficient.

The new approach should not be a fixed or unitary system, but a flexible network of institutions, maximising the strength of interconnected global actors, including not just the existing institutions such as the World Bank, the IMF and the United Nations, but also private sector firms and civil society organ¬isations.

The new economic multilateralism must be inclusive and pragmatic, embracing not just trade and finance, but development, climate change, fragile states and energy. It must look beyond the G7 to include not just the rising economic powers but representatives of the poorer countries as well.

The crisis has highlighted the need for reform of the Bretton Woods institutions. A modernised World Bank Group must represent the international economic realities of the 21st century, recognise the role and responsibility of growing stakeholders and provide a larger voice for Africa. Voice and partici¬pation is an issue for resolution by World Bank shareholders.

Last month, shareholders endorsed an initial package of reforms. As a second step, share¬holders agreed that the bank should undertake a comprehensive and intensive work programme to realign bank shareholding, moving towards an equitable voting power between developed and developing countries. Work on this second stage is beginning now, and should proceed quickly to consensus.

The Zedillo Commission, created by World Bank President Robert Zoellick to look at World Bank Group governance more broadly, will report back next year.

Stabilising the Financial and Private Sectors

The financial crisis has its origins in the developed world, but is quickly being transmitted to the financial systems of developing countries. Financial institutions in developing countries are beginning to suffer from a lack of shortterm liquidity, as retail deposits exit and nondeposit funding dries up.

As the effects of the global recession spread, the impact will be felt on financial sector asset quality, leading to the need for recapitali¬sation of financial institutions.

Lack of liquidity will also reveal underlying weaknesses in regulatory frameworks and in the management of financial institutions, requiring regulatory reforms and capacity building. Tight credit mar¬kets in developing countries are rapidly affecting the real sector, especially sectors reliant on trade finance and working capital.

The World Bank Group can be part of a coordinated and rapid programme of action to avert the collapse of banking sectors in poor countries.

Such initiatives will complement and support developed country rescue packages for their domestic financial systems.

The World Bank will offer advisory services to help countries prepare for and respond to financial sector crises, assess vulnerabilities and strengthen policy and regulatory frameworks. Currently, the World Bank is responding to requests from some 19 middle and lowincome countries.

The International Finance Corporation will provide advisory services to financial institutions to strengthen their capability to withstand crisis conditions and to strengthen their financial position. IFC will support programmes to provide shortterm finance (including trade finance) to the real sector.

IFC and the World Bank will provide capital to vulnerable banking systems - either directly in IFC's case, or indirectly through devel¬opment policy operations supporting government bank recapitalisation programmes in the case of the World Bank, not only in the immediate phase of the crisis but as sec¬ondround effects take effect.

IFC is also proposing a significant increase in its trade finance interventions as well as mobilisation of a recapitalisation fund. This fund would include contributions from IFC and other donors and would recapitalise distressed banks, which may have a systemic impact.

Preliminary discussions have already taken place with potential partners, including governments, other international financial institutions and commer¬cial banks.

This article is based on the World Bank's proposal for the G20 Summit to be held in Washington DC on Saturday