Absolutely. In fact, other than the vaccine (which is specific to this strain of flu), most of the smart measures countries can take to address H1N1 are also good for the health system as a whole. This includes strengthening surveillance and other parts of the public health system, building up laboratory networks, and improving public communications and understanding of health. All of these things are helpful to identifying and dealing with many other diseases, and especially epidemics. In fact, given how much uncertainty remains about what H1N1 could do next, it is good to focus on measures that will benefit the health system no matter what happens with H1N1.

Excellent question. Actually, the lessons of SARS are being used every day. The first lesson was that the world needed a better-organized system for addressing epidemics, since so many actors need to be involved. This led to the enactment of the International Health Regulations in 2007. The Regulations are a set of rules and procedures that governments and international health bodies have agreed to follow, to improve coordination, harmonize messages, and speed the response. They have been used from the first moment that H1N1 was announced, and have produced far-better coordinated action than we had in prior epidemics. A second lesson of SARS was that it’s crucial to handle public communications well. Leaders need to be repetitive, realistic, and reassuring with the public, giving them frequent and factual information and encouraging appropriate responses while discouraging panic. The general public in every country can act responsibly if it trusts public information, knows where to get it, and understands what measures it can take. The mass closings of schools, businesses, and sports events and the deserted streets we have seen in some countries are very dramatic, but show that people are listening. There are also a number of less visible measures that agencies are taking to improve coordination. So the lessons of SARS are informing everything we do in H1N1.

You’ve made an important point here. Nutrition is essential to the physical and intellectual development of every child. What happens before birth and in the first two years of life puts each child on a particular path, which cannot be changed much after the second year of life. Too many children in Latin America are still growing up malnourished (more than a quarter of all children in several countries) and it is stunting their potential. Contrary to what many people think, malnutrition in Latin America is not a result of inadequate food consumption. Rather, it results from inadequate breast-feeding practices; childhood diseases such as diarrhea which are treated late, poorly, or not at all; and an inappropriate balance in the child’s diet as he or she is weaned. Fortunately, there are many successful and promising examples of programs that are solving these problems. These include integrating more nutrition into core health services, supporting community-based services and information, and conditional cash transfers. For more information on programs in a particular country, please contact the local World Bank office.

You’re quite right that a global epidemic is the last thing we needed on top of a global economic crisis. Besides the suffering and loss of life it creates, it can also place immense stress on health systems that are already having difficulty coping. This is why it is important to blunt the impact of H1N1 (and other epidemics) as much as we can. The good news, as I said in an earlier answer, is that most of the measures that can help against this flu can also help strengthen health systems in general, and better prepare them for future threats. This includes improving surveillance, public information, laboratory networks, and immunization programs. This means that a dollar or a peso spent on addressing H1N1 does not have to take a dollar away from other health priorities, because it can benefit both. Partners such as the World Bank have made large sums available to countries to meet both the immediate needs such as vaccines, as well as the broader needs of strengthening public health systems.

The paramount lesson of improving health systems in any country is that we have to start from where we are. And you’re quite right that a substantial share of health services around the world are provided and/or funded by the private sector. This means that any effort to make things better must take account of the role of the private sector, how it connects to the public sector, and how patients and the public see the situation. This is often presented as an ideological issue, but that doesn’t really help answer any of the key questions. The truth is, both the public sector and the private sector have performed magnificently in some situations and dismally in others. What is important is not what precise share the private sector “should” have or whether it has a role at all. What’s important is the structure of incentives, financing arrangements, standards, regulations, and relationships that control how the manifold parts of the health system (including the private sector) will interact and whether they are collectively promoting the greatest attainable health at affordable cost, while protecting households from suffering onerous health costs. That’s a complex problem with guiding general principles but no simple answer, and one that needs to be worked out in the specific context of each country’s circumstance.

Good morning,
thanks for joining the chat and thank you for your question. Let's get started.

Yes, the Bank is actively supporting health systems in all regions of the world. Africa is a major focus for Bank activities, which are geared to helping African countries achieve their national and MDG goals and to build health systems sustainably. Bank support includes projects that cover the full range of health system challenges, HIV/AIDS, and malaria, as well as analytic work and policy advice. Information on all Bank projects is available at the Bank's Projects Website.

Question translation:
Having seen the very close link between very simple communication measures and prevention of the H1N1 virus (for example, frequent hand washing and the availability of proper sanitation services such drinking water and functioning sewerage systems), to what extent is the spread of an epidemic attributable to the acute shortage of these services in many poor areas in the big capitals of Latin American countries such as the favelas of Brazil or the ranchos in such cities as Caracas, Venezuela?

Thank you for raising this, which is a very important question. Poor sanitary and living conditions are indeed a major contributor to illness and vulnerability in poor communities around the world, including in Latin America. In fact, this is one of the main reasons that there is such disparity in the rate of infectious diseases between poor communities and non-poor communities in Latin America. In the case of H1N1, it’s too early to say how much living conditions have contributed as opposed to other factors. Because it is a “new” strain which people have not been exposed to, it is tending to infect people from all socioeconomic classes. But it is certain that over time, communities with better services and living conditions overcome most diseases more quickly than poor communities do. This is why the Bank and many other agencies working on health put such emphasis on support the many contributors to better health, such as water, sanitation, and education.

Question translation:
Is it true that wealthy countries are hoarding the vaccines?

The wealthy countries will be the first to do large-scale immunization programs, as the flu season resumes in the northern hemisphere. At the same time, many of them have pledged to donate a certain share of the vaccines they acquire to the World Health Organization, which will then provide them to poor countries to give to groups at greatest risk. Middle-income countries will be obtaining vaccines by buying from manufacturers or through special fund arrangements. For more information, you can visit WHO’s website at http://www.who.int/csr/disease/swineflu/notes/pandemic_influenza_vaccines_20090924/en/index.html

Hello! Thank you so much for your interest in IC4D 2009, and for all your interesting questions. Let’s get started right away.

ICT provides economic opportunities to both urban and rural populations. One common contribution is that it increases productivity and makes the market work more efficiently, although the magnitude of the impact on economic growth is likely to be different. The fact that virtually all new mobile customers in the coming years will be in developing countries, and more specifically in rural areas, means that the ICT platform is reaching population with low levels of income and literacy.

As a result, ICT is becoming the largest distribution platform of providing public and private services to millions of people in rural and poor areas. Market information, financial services, education and health services had largely been unavailable in those areas in the past due to lack of connectivity of any kind. Now the wireless platform is promoting NEW economic and social opportunities at all levels for the poor population.

Our research (see chapter 4 in our IC4D06 report), covering 20,000 firms from 26 sectors in 56 developing countries, shows that businesses that use ICT (phone, PC and email) more intensively are more productive, grow faster, invest more, and are more profitable. This study includes many small and medium enterprises (SMEs).

Besides the limitations of existing telecom infrastructure in developing countries, the principal constraints in adopting and using ICT applications, especially for small businesses, include lack of capacity to assess returns and costs of using ICT, and a shortage of and inability to retain ICT-skilled labor. In some countries, business associations assist with needs assessment for businesses to invest in ICT (note that not all of them would benefit from using ICT), advise them on technology choice, and provide common business applications (e.g. HR, accounting) at low cost to small businesses. Some governments offer support of training and skills development.

In terms of ICT connectivity, the World Bank Group has promoted ICT access in developing countries through (1) advising on sector and institutional reforms to encourage competition and private sector participation; and (2) innovative financing mechanisms such as incubators, and public-private partnerships (PPPs) for extending rural access.

Low-income countries which have implemented deep sector reforms supported by the Bank Group generated some US$16 billion in investment between 1997 and 2006. Some US$20 million in output-based aid in Nepal, Nicaragua, Nigeria and Uganda provided access to 3,356 remote localities, serving over 7.8 million people.

In addition, IFC, the private arm of the Bank Group, has also been financing US$1.5 billion and mobilizing another US$330 million for 84 ICT projects to date in 32 low-income countries (mainly for the extension of mobile and data networks).

Yes, Africa still has the lowest telephone and Internet user penetration (about 25 percent and 5 percent compared to the world average of over 70 percent and 20 percent respectively) and highest costs (e.g. price basket for Internet per month is over $40 compared to the world average of $20). The costs are big bottlenecks for ICT uptake, given the low income levels in the region.

The World Bank has been working closely with about 30 countries in Sub-Saharan Africa to strengthen regulatory frameworks, build regulatory capacities, and address rural access. Reforms implemented since 2000 have unleashed competitive forces in the sector, particularly in the mobile market. The result has been unprecedented increase in investment: total telecom investment in the region between 2000 and 2007 reached $20 billion. Africa is the fastest growing region in the global cellular market: the number of mobile subscribers increased from 2 million in 2000 to over 150 million in 2007.

From 2005, public-private partnerships for regional connectivity have been recognized as a powerful vehicle to push down the cost of international bandwidth and increase the affordability of high-speed internet. Examples of such partnerships are the on-going IFC-supported Eastern Africa Submarine System (EASSy) and the Bank’s Regional Communications Infrastructure Program (RCIP).

Together, EASSy and RCIP have triggered a race for connectivity in Eastern and Southern Africa with prices set to decrease five-fold or more. Part of the approach is being replicated for Central and Western Africa. Other ways to push prices down are to lower taxes and termination fees. Any incremental efforts to lower prices would have a tremendous impact on affordability and hence access.

For more information, visit RCIP's website.

Yes, it is a challenge to have high-speed Internet at affordable prices in most African countries at this stage. Connectivity gaps at international, regional, national and rural levels make it difficult to reap the full benefits of a highly functional and effective ICT sector. They also prevent the region from capitalizing on innovative applications to improve service delivery in both the public and private sectors.

As I said in my answer to Matt, the World Bank Group has been working closely with over 30 countries in Sub-Saharan Africa to improve ICT connectivity. At the same time, we have also launched projects and programs that develop e-government applications and IT-enabled service industry.

To take Ghana as a specific example, the country is on the cusp of a breakthrough in improving internet connectivity. The establishment of a National Communications Backbone Company Limited to develop a robust national fiber infrastructure, and the approval of cable landing rights for at least two companies to compete with the SAT-3 cable, should soon provide most Ghanaians with more affordable and reliable high speed internet connectivity.

Separately, the World Bank launched a US$40 million project called e-Ghana in 2006, which aims to provide support for improving Ghana’s competitiveness in the IT/IT-enabled services industries, including Business Process Outsourcing (BPO), as well as support for enhancing public service delivery through e-government. Activities under this project include setting up a high-speed, government-wide communications network connecting key ministries, departments and agencies; establishing a shared portal infrastructure for key agencies; and developing electronic applications for the priority revenue-generating agencies in the country.

Having the right trade environment can facilitate the development of ICT. Likewise, ICT can foster, enable and facilitate trade. The relationship between trade and ICT can be viewed from three angles: trade in ICT (e.g., international telephone calls), trade in services to which ICT is a critical input (e.g., outsourcing data entry or computer programming services), and ICT as a general facilitator of other types of trade (e.g. a farmer using text messaging to check export prices). These three angles are collectively referred to as “ICT-related service trade.”

In 2007, the World Bank conducted a series of studies and capacity building on ICT-related service trade for Eastern and Southern African countries (Trade in Information and Communication Services: Opportunities for East and Southern Africa, available on our website’s publications’ page). The study found that some of the critical elements necessary for successful ICT trade (“ICT-competitiveness”) are not sufficient. These elements include network infrastructure; an enabling policy, legal and regulatory framework environment; the education and training required to have a labor force with necessary ICT skills; use of ICT applications by businesses and government; and consumer awareness.

The Bank is following up on this analytical work with projects in Ghana, Kenya, Nigeria and Rwanda to facilitate trade in ICT business, particularly in business process outsourcing (BPO). These projects include, among other things, support to industry associations, development of IT Parks, partnerships with the industry to take up training of manpower, and support to investment promotion activities. More countries are likely to be added based on readiness of interested countries and effectiveness of these earlier programs.

ICT planning and implementation should be closely linked to a country’s overall economic development and poverty reduction strategy. Prioritizing among various (often competing) demands is never an easy task, nor is it one-model-fits-all. Having said that, we would like to encourage a comprehensive assessment of key pillars of the ICT sector to avoid projects or programs that promote e-government without proper infrastructure in place, expand broadband without developing applications and content, or that develop IT industries without a pool of skilled labor.

Most of the World Bank ICT programs in the 30 plus countries in Sub-Saharan Africa include targeted capacity building programs for both public and private sector. In a number of countries including Ghana and Nigeria, we're working with government to develop incubation programs which are aimed at honing young entrepreneurial skills particularly in software development and other innovative applications. We are also working with the industry to design training programs in software development and foundational business process outsourcing skills that are aligned to industry requirements.

The impact on economic growth of high-speed internet connectivity, and of ICT more generally, is aggregated through its impact on individuals, businesses, government and communities. We should remember that it always takes these economic agents some time to figure out how to best use the ICT that is available to them. In most cases, individuals, firms, and communities would have to make investments in "complementary capital" (e.g. worker training and skills, organizational or even institutional adjustments) to reap the full benefits of ICT. The effect might be amplified by the flexibility and willingness of the users of ICT to transform their work habits, update their skills and adopt the technology in economic activities.

Whether this great potential to contribute to growth is realized will also depend on whether governments understand the opportunity and ensure that supportive conditions (e.g. providing high-capacity connectivity) are in place through regulatory and policy reforms as well as strategic investments and public-private partnerships. Realizing the benefits of the Internet requires development of new content, services, and applications.

Many ICT ministries and regulators as well as international organizations requested a copy of our report. Most are interested in our findings about the high economic impact of broadband: For every 10 percentage points increase in broadband penetration, there is an incremental increase in economic growth of 1.3 percentage points. Some also showed interest in the huge potential of the mobile/wireless platform (e.g. delivery of public and private services) and the IT and IT-enabled industries (e.g. job creation, promoting exports) for developing countries.

We will have the next issue of IC4D report in 2011 or 2012. We would like to drill deeper on (a) broadband policies and sustainable public-private partnership models; and (b) mobile applications for sectoral development (e.g. m-banking, education, health, agriculture/market information, social networking, etc), in terms of the regulatory guidance as well as practical operational guide involving government, telecom operators, application developers and mobile users.

According to our recent cross-country study (covering 120 developing and developed countries over the period of 1980 to 2006), the growth benefit that telecommunications provides for developing countries was of higher magnitude than that for developed economies for every telecommunications service (see the figure below). This is probably because telecommunications services help improve the functioning of the markets, reduce transaction costs and increase productivity through better management in both the public and private sectors. These issues were more acute in developing economies than in developed ones. Therefore, developing countries gain more by resolving some of them through better access to telecommunications.

This is not to say that the risk of "digital divide" does not exist. Especially as we move from simple voice and text messaging to more complex services and applications, the potential to benefit from ICT depends on factors (as I mentioned in my response to Malak) where developed countries have comparative advantages. But ICT offers leapfrogging possibilities and new opportunities at all levels. So let's work together to maximize its development impact, especially in low-income countries.

Graph: Growth Effects of Telecommunications

Well, that's all the time we have today. Thank you so much for your great questions, and for your interest in the Bank's work in ICT. If you haven't already, please visit the IC4D website.

What an interesting question, Tom! There is no immediate solution in sight in the UNFCCC. The main obstacles include the question of attribution (who gets the carbon credit -- the entity planting the trees? The one buying the table? Or the one using the table?), and the issue of verification (how to verify the continued carbon sequestration in the wood products?).

In terms of accounting, a full debit is registered when the wood is harvested (it is assumed that all of the carbon contained in the wood is emitted), and no credit can be accrued for sequestration in products.

I am afraid there might not be great potential for a garment factory to benefit from carbon finance. The reason is that garment manufacturing is not very energy-intensive; therefore the potential for reducing emissions through energy efficiency improvements is relatively limited on site; in addition, justifying additionality for such improvements -- a key principle in the Clean Development Mechanism -- would be very difficult.

The greatest potential is more at the source of electricity generation that powers the plant. There, especially in India, there is a lot to be done to move towards electricity generation with a lower carbon content. We hope to work more closely with India on this in the future.

The beauty of the Kyoto Protocol is that it set up market mechanisms that enable companies in industrialized countries to support emission reductions in developing countries by buying carbon credits. It is quite an innovation in the world of development as it brings companies in industrialized countries in direct contact with projects in developing countries that have as specific objective to reduce emissions of greenhouse gases and in the process allows for technology transfer.

For example, the World Bank has set up a number of carbon funds that do just that (www.carbonfinance.org). These funds have received money from a wide range of companies in Europe and Japan (look at our annual report on our website for a list of these); with this money, the World Bank purchases carbon credits from investments made by project developers in developing countries.

Hi!

I don't have the answer at my finger tips, but I will be happy to research this topic for you. Please email our communications specialist, Ms. Isabel Hagbrink, at ihagbrink@worldbank.org, and she will follow up.

Charles, we are always looking for financing! We have a number of funds that might interest you. Why don't you call Isabel Hagbrink to discuss? Her number is +1 202 458 0422. Looking forward to talking to you.

Good morning or afternoon if you are writing from Africa…

Let me try to answer your very interesting questions. It is a fact that Africa has low emissions, so it is not surprising that there are not as many CDM projects as in other parts of the world. It is also a region where the private sector, that is taking most of the initiative elsewhere, is not as proactive. It is a fact that the Clean Development Mechanism requires a significant upfront investment in capacity building and training, both on the investor and government side. It takes time to understand how it works and the benefits thereof. We have been helping countries to bridge that gap.
From our perspective, the continent is of high priority and through our carbon funds, we are actually involved in quite a few projects (about 17% of our projects last year were in Africa). Several of these are in the very sectors you mention. However, we realize that there is much more that can be done and we are exploring how to intensify our activities in these key sectors.

This is the last question for which I have time today to answer. Thank you all for your interest. Please feel free to contact us through our help desk on or our communications specialist, Ms. Isabel Hagbrink, at ihagbrink@worldbank.org.

Hi! This looks interesting.

Please send your project idea note (PIN) to our help desk .

We'll be happy to have a look at it.

I am not sure I agree with you. Although it is a slow process and we are still in the early stages of climate change mitigation, our experience with carbon funds such as the Community Development Carbon Fund (www.carbonfinance.org) shows us that it is possible to reach out to local communities and poor populations to work with them so that they can access cleaner energy alternatives. For example, we are working with Grameen Bank in Bangladesh to promote solar energy for poor households. There is much more that can be done in this area working in tandem with microfinance institutions. Please feel free to contact our fund manager if you work in microfinance through our help desk.

Although there is a general slowdown in project-based carbon market transactions, the World Bank is continuing to increase its support for emission-reduction projects. My unit (www.carbonfinance.org) manages carbon funds that buy emission reductions generated by investments in a large number of developing countries. In particular, we have quite a few activities in Africa, in energy, forestry and waste management. Also, we are helping countries develop strategies for forest conservation.

Despite the financial crisis, we are pushing ahead with these activities and the World Bank in general is providing a strong impetus to climate change mitigation in the developing world. If you mean by “negative externality” the impact of climate change on your country’s development prospects, such as increased extreme weather events (e.g., floods, prolonged droughts, more frequent hurricanes), the World Bank is ramping up its work on “adaptation”, starting with a lot of analysis on what it means and costs, working with individual countries on assessing their needs to adapt and how they can meet these needs. Watch out for an upcoming World Bank report on the economics of adaptation that will be launched in October.

There are two avenues currently available for carbon crediting: (a) the voluntary carbon market and (b) the Clean Development Mechanism (CDM) in the Kyoto Protocol. Each has its own set of eligibility conditions and processes for implementing activities that can then earn carbon credits. Information can be accessed from their respective websites. Your eligibility will depend, amongst others, on how, when the type of land and the scale of planting. Your first point of contact should be the climate change (CDM) focal point in Kenya at the Ministry of Environment and Natural Resources. Alternately you could approach organizations such as the Green Belt Movement that are active in mobilizing communities for tree plantations for carbon crediting in Kenya. The World Bank Team can assist in providing further information. Just go to our help desk.

Bonjour de Washington! Quelques mots généraux sur le protocole de Kyoto y le Mécanisme pour un Développement Propre (MDP)

Le protocole de Kyoto adopte en 1997, fixe des engagements chiffres et contraignants de limitation ou de réduction des émissions de gaz a effet de serre (GES) pour les pays industrialises et en transition vers une économie de marche, et ce pour la période 2008-2012. Afin de limiter le cout économique résultant de la réduction des émissions de GES la ou il est possible de le faire a moindre cout, le protocole de Kyoto prévoit trois «mécanismes de flexibilité» fondés sur le marché: l'échange des droits d'émission, l'application conjointe et le mécanisme de développement propre (MDP).
Ces mécanismes visent à permettre aux pays industrialisés d'atteindre leurs objectifs en échangeant entre eux des droits d'émission et en obtenant des crédits supplémentaires en mettant en œuvre des projets de réduction des émissions à l'étranger. L'application conjointe se rapporte aux projets lancés dans des pays qui doivent eux aussi respecter des objectifs d'émission, et le mécanisme de développement propre concerne les projets menés dans des pays en développement auxquels il n'a pas été attribué d'objectifs.
Le protocole de Kyoto a permis ainsi le lancement et la mise en place d’un marché international du carbone. En parallèle, d’autres initiatives de réduction d’émission de GES diverses dans leur approche (mandataire ou volontaire) existent ou sont en cours de développement, comme le cas du marché carbone volontaire ou les unités de réductions volontaires sont commercialisées.
Comme c’est encore le cas pour plusieurs pays d’Afrique sub-saharienne, il n’y a pas encore d’opération carbone au Togo (ni selon le MDP, ni selon le Gold Standard et le Voluntary Carbon Standard, deux principaux standards du marché volontaire), en particulier en raison de sa faible empreinte carbone. Il existe cependant certains potentiels qui pourraient faire l’objet de transactions de crédits carbone: des projets de cogénération dans les usines de conditionnement de la canne à sucre (utilisant les résidus agricoles) et des projets de conversion de centrales électriques vers des combustibles moins émetteurs (comme le gaz naturel).

Bonjour de Washington!

Madagascar a plusieurs operations carbone en cours. Dans le secteur des forêts, par exemple, le Ministère de l’ Environnement, Eaux et Forêts est en train de mettre en œuvre un projet de reboisenement avec des essences autochtones dans la région de Moramanga, avec l’appui de Conservation International (CI) et de la Banque mondiale (BM). Madagascar est aussi un des premiers pays à mettre en œuvre des projets REDD – Réduction des émissions liées à la déforestation et dégradation des forêts, y compris un projet assez avancé dans le Corridor Ankenihenzy-Zahamena, avec CI et la BM et un autre project dans le Parc de Makira, avec WCS. Ces projets sont en train de commercialiser des crédits carbone sur le marché volontaire, car les activités REDD ne sont pas éligibles dans le Mécanisme de Développement Propre du Protocole de Kyoto.

English Translation:In Madagascar there are several carbon-related operations under way. In the forestry sector, for example, the Ministry of Environment, Water and Forests is in the process of implementing a reforestation project in the Moramanga region, using indigenous species, with the support of Conservation International (CI) and the World Bank. Madagascar is also one of the first countries to implement Reduced Emissions from Deforestation and Forest Degradation (REDD) projects, including a project at a fairly advanced stage along the Ankenihenzy-Zahamena Corridor, in collaboration with CI and the World Bank, and another project in the Makira Natural Park, with WCS (Wildlife Conservation Society). These projects are also serving to promote carbon credits in the voluntary market as REDD activities are not eligible under the Kyoto Protocol’s Clean Development Mechanism.

Bonjour! Puisque vous semblez être québécois, laissez-moi répondre en français. En effet, nous travaillons sur le développement de methodologies s’appliquant au transport urbain dans le cadre du mécanisme de développement propre.

English Translation:
Good morning! Since it appears that you are from Quebec, I will respond in French. We are, in fact, working on developing methodologies for addressing urban transport within the framework of the Clean Development Mechanism.

Le Cameroun est un des pays qui participent dans le Fonds de Partenariat pour le Carbone Forestier (FCPF) de la Banque mondiale (Forest Carbon Partnership Facility), dont le but est d’appuyer les pays dans la préparation et mise en œuvre d’une stratégie nationale pour la réduction des émissions dues à la déforestation et la dégradation des forêts (REDD).

Le Cameroun a déjà signé son Accord de Participation avec le FCPF et doit bientôt commencer à préparer sa stratégie nationale. Dans cette stratégie, il est possible que le pays adopte un mécanisme pour compenser les propriétaires directement, mais ça dépendra du pays. Vous pourriez obtenir plus d’information auprès du Ministère de l’Environnement et de la Protection de la Nature.

Une autre possibilité pour qu’un propriétaire puisse accéder directement au marché de carbone, c’est le marché volontaire pour lequel il faudrait préparer un dossier de projet pour présenter à des acheteurs intéressés.

English Translation:
Cameroon is among the countries participating in the World Bank's Forest Carbon Partnership Facility (FCPF)—http://www.forestcarbonpartnership.org/fcp/node/11—which aims to support countries in the preparation and implementation of a national strategy for the reduction of emissions from deforestation and forest degradation (REDD).

Cameroon has already signed the FCPF Participation Agreement and will soon begin preparing its national strategy. As part of this strategy, it is possible for the country to adopt a mechanism for direct compensation of landowners, but that depends on the country. You may obtain more information from the Ministry of Environment and Nature Protection.

Another possible way for a landowner to gain access to the carbon market directly is through the voluntary market, for which it would be necessary to prepare a project proposal for submission to interested buyers.

First of all. let me welcome all of you to this online chat on the implications of the global financial crisis on East Asia. I look forward to interacting with you for the next hour and a half.

Resti raises an important question about incipient signs of protectionism -- important because if there is one thing we learnt from the 1930s Great Depression, it is that raising trade narriers compunds recessionary forces and prolongs the recovery process.

You probably know that at the G20 meetings in November last year and more recently in April this year, the leaders called to avoid protectionist measures. Unfortunately, 17 of the 20 countries present have implemented 47 measures (at last count) that in effect restrict trade at the expense of other countries (and I include among these, measures such a subsidies and other support packages).

There aren't too many signs of prtectionism in East Asia -- but there are some. For example, Indonesia now requires 5 categories of goods (garments, footwear, toys, electonics, food, and beverages) to pass through five ports or airports. China has also introduced a few import restrictions through tightening phytosanitary standards in food improts) and provided additional support to its car industry. And Malaysia has banned the hiring of foreign workers to preserve jobs for its own citizens.

But these East Asian actions are relatively few and minor compared to actions being taken in the advanced economies and in other developing regions. These include, for example, enormous subsidies for car manufacturing worldwide ($45 billion at last count, of which $43 billion is in the advanced economies).

Most important, however, is the point that the current contraction in global trade has little to do with protectionist measures -- and everything to do with global recessionary forces. Nevertheless, if such protectionist measures become more prevalent and widespread they will add to these cotractionary forces and prolong the recovery process.

I hope that answers your question, Resti.

Our projections are for economic growth in developing East Asia to slow to 5.3 percent in 2009 from 8 percent in 2008 because of the contraction in external demand and, in most countries, weak domestic spending. With China's economy bottoming out, and the likelihood that global demand will begin to firm in 2010, economic expansion in the region is likely to strengthen in 2010. There are substantial downside risks, especially to prospects for developed countries. Continued problems in commercial banks in developed countries, or renewed financial tensions, could delay global recovery further or, in fact, result in another year of contraction of global output.

Indonesia's slowdown came somewhat later compared with other countries in the region, and growth in 2008 slowed by a very small margin compared with 2007. The contraction in global demand, nonetheless, will cause growth to slow to perhaps 3.4 percent in 2009 from 6.1 percent in 2008.

Indeed, the Philippines has not been spared the global downturn and growth in 2008 slowed substantially after a period of robust expansion. With electronics accounting for 60 percent of exports, and global demand for electronics substantially depressed, Philippines' shipments have fallen sharply. Job losses have been large, notably in the export-oriented manufacturing sector. As of the end of March, there were the government reported 45,000 job losses from overseas workers, with further job losses likely in the near term. Inflows of remittances have weakened, and prospects are for these to actually decline in 2009. All in all, growth is projected to slow to 1.9 percent in 2009 from 4.6 percent in 2008 and 7.2 percent in 2008.

Frank asks a question that is often asked -- namely the respective roles of the World Bank and the the International Monetary Fund. These happen to be well defined and have been the subject of scrutiny by periodic international panels of eminent persons. Broadly, and without getting into too many details, the Fund is essentially concerned with helping countries maintain macroeconomic stability -- or regain macroeconomic stability -- and is the lender of last resort in the event of a macroeconomic crisis. In contrast, the Bank is a development institution that focuses on financing investments that assist a country in its long term development efforts.

But its only natural that the roles of the two institutions occasionally overlap. For example, for the Fund, problems of macroeconomic stability in a particular country may stem from underlying structural and institutional issues -- and getting the macro right often means improvements in policies that address microeconomic imediments or institutional weaknesses (areas that the World Bank is concerned about). And for the Bank, the success of development programs often need macroeconomic stability and a stable policy environments (issues that the IMF is concerned about).

For these reasons, the two institutions need to work closely together with one another -- as well as with other stakeholders in the development process in their client countries.

Harsh, thank you for your interesting question -- but one frankly that will take a long time to answer. So rather than answering the question directly, let me suggest that you take a look at the recent G20 communique and the accompanying documents. You can find it at the New York Times website: http://www.nytimes.com/2008/11/16/washington/summit-text.html

The communique gives a useful summary of the problems that led up to the crisis and the avenues that the largest and most important countries of the world are collectively pursuing to resolve them.

If after reading this, there is any further questions that you have, then please feel free to raise them with me.

David, China's bottoming out is a positive sign for the region. But this bottoming out results from the fiscal and monetary stimulus and has little to do as yet with exports. Indeed, in the first quarter, the contribution from net exports was actually negative, according to the just released national accounts data. A recovery in China's exports will clearly depend on global recovery, and prospects for such recovery are still uncertain. We are concerned about rising protectionism, although implementation of protectionist and trade-distorting measures in the region has been quite subdued so far.

The first priority for the countries in the region is to combat the slowdown, protect their financial systems and, most importantly, alleviate the impact of the crisis on the poor and vulnerable. But a recovery in global demand will come. Countries will benefit from that to the extent they have improved competitiveness, are in a position to extract more growth from the domestic economy, and whose companies are able to diversify exports across regions and products.

Howard, I don't believe the problems that arose in Thailand at the East Asia Summit of the ASEAN+6 leaders will necessarily slow the process of mutual help and support that ASEAN and its 6 regional partners have embarked upon. Indeed, I was present at the preceding ASEAN Finance Ministers Meeting held in Pattaya (prior to the Heads of State meeting) and the sense of common purpose and mutual support was palpable. Having said that, a key element in the program that has been laid out by ASEAN and its regional partners is the mulitlateralization of the Chiang Mai Initiative that will allow countries to obtain liquidity support in the event of another bout of uncertainty or capital flight. The details of this program are not known and these meetings in Pattaya were to have been an occasion where the process could have been advanced, These issues will now have to be discussed at some future opportunity and this could perhaps delay the process

Dollarization is large only in Cambodia, Lao and Timor-Leste.

Barbara: First of all congratulations. I had to look hard to find the number that you are alluding to! I eventually found it on page 67 (Appendix Table 4) in then last row and last column. It takes a diligent reader to go through the report in such detail and then ask a good question!! I should note a few key things about Vanuatu:

• Since 2005, GDP growth has hovered between 6 percent and 7.2 percent. The growth rate in 2008 was 6.3 percent. The strategy of the Goverment prioritizes private sector development, macroeconomic stability, good governance, and public sector management and reform.
• Growth in 2008 was driven by strong growth in tourism and construction.
• Inflation has been moderate -- around 5 percent -- despite high fod and fuel prices last year. Reserves have been high, and the fiscal accounts have been broadly balanced or in surplus (they recorded a surplus of 2.3 percent of GDP in 2008, thanks to better-than-expected VAT revenues).

The effects of the global financial crisis have yet to be felt in Vanuatu, but we can expect:

• a slowdown in construction activity (which is already happening), because capital flows from Australia and New Zealand are expected to ease.
• tourism and foreign direct investment inflows are also expected to decline.

But, at the same time, the government is in a relatively good position to respond to the slowdown with appropriate macroeconomic measures because:

• donor inflows are likely to remain strong;
• a more relaxed monetary stance can be supplemented by a more expansionary fiscal policy; and
• the authorities have the fiscal space and adequate international reserves to take these appropriate macroeconomic measures

For these reasons, we believe that a 3 percent projected growth for Vanuatu in 2009 is not unreasonable -- indeed, some may think this conservative.

Governments are acting to cushion the impact of the crisis on the poor. The policy response, however, is complicated by the lack of adequate social safety nets in many countries. Countries with safety nets, including China, have been able to provide assistance, but others are facing substantial challenges.

In the Philippines, the government is expanding social spending under the stimulus package and front-loading some of it in early 2009. Coverage under the government's conditional cash transfer program has been increased to 360,000 from 20,000 in 2007, and further efforts are under way to improve targeting and scope. In addition, the government has enacted a program to help returning overseas workers.

All in all, most social programs in the region are underdeveloped. Governments are likely to act with renewed urgency in the medium term and develop a more comprehensive approach to social protection, including by expanding the set of interventions to ameliorate the impact of adverse shocks.

The World Bank has worked with governments in developing countries to support policies that improve the countries' defences against adverse shocks. The World Bank is also very active in helping countries deal with such shocks once they occur. The Bank has increased financial assistance; called for the development of a Vulnerability Fund to which developed countries could dedicate 0.7 percent of their planned fiscal stimulus, and the Bank is adapting its financial instruments to the specific needs of its clients. In addition, the World Bank is providing countries with access to diagnostic and capacity-building instruments to help improve policies and identify priority areas for government spending. The IFC, a part of the World Bank group, has expanded its support for trade finance through the Global Trade Finance Program and the $50 billion Global Trade Liquidity Pool, in addition to its support to developing countries through an infrastructure crisis facility, a bank recapitalization fund and a microfinance liquidity facility.

Amarkhuu, it is important to look at currencies' nominal effective exchange rates, i.e., their rates against the basket of currencies of their trading partners. Measured in effective terms, the renminbi (RMB) appreciated 12 percent in 2008, compared with an appreciation of 6 percent against the dollar. Under the 11th five-year plan, the authorities are committed to further appreciation of the currency.

Gregore: Thanks for your question -- which a number of people are asking these days.

Let me make some preliminary points before I answer your question.

First, it is important to recognize that East Asia's open trade policies have served the region well -- supporting rapid growth in trade and GDP over three decades and allowing capital to flow to countries where it could be used most efficiently . As the 2009 World Development Report has also noted, East Asia's rapid growth in trade has been, in considerable measure, within the region -- and the bulk of it has been intra-industry trade which has taken advantage of economies of scale, including agglomeration economies.

Second, all those calling for a review of East Asia's export-oriented development strategy are not advocating protectionism or a retreat to autarky. What they are asking is whether domestic market sources of growth can potentially replace export growth.

This is defintely possible -- but mainly for countries with relatively large domestic markets (China, Indonesia, Philippines, Thailand, and Malaysia). At the same time, it must be recognized that domestic markets give only limited possibilities compared to global markets.

So what could East Asia do differently that would give it greater resilience in the face of a crisis similar to the current one? In fact, there a number of things it could do. First and foremost, East Asian countries could diversify their export markets. The reliance on the US and European markets has proved to be a problem in this crisis. Second, some countries should reconsider any subsidies that export industries may receive -- but those aimed at the domestic market do not. These may include preferred access to capital and land, cheaper prices of inputs (including energy inputs), and quicker administrative approvals for licences and so on. Third, an improved environment for the private sector, and lower entry and exit barriers, will help industries develop that cater for the domestic market. In particular, government should encourage small and medium enterprises (SMEs) that cater mainly to domestic markets. Fourth, improved financial makets and banking systems that give broad access to finance will help provide for more balanced development, And finally, more flexible exchange rate regimes will ensure that adequate incentives are provided for non-tradeables sectors, just as much as for tradeables industries (exportables and import substitutes).

Dear Daisy, thank you for a very important question. I think there are two sets of issues: issues related to the current global recession, and then issues of more medium-term nature. Recall that before the current recession, PNG was enjoying the strongest period of growth since independence, with growth of 6.5 percent in 2007 and 7 percent in 2008. But as global demand weakened, PNG's exports - 95 percent of them copper, gold and petroleum - were negatively affected. Global demand will pick up and demand for these raw materials will recover. Developments in China are a bright spot, as the bottoming out in China and the likelihood that its demand for raw materials will rise could help PNG's exports recover as well. Another positive spot will appear when the $17 billion Liquified Natural Gas Project receives a go ahead in late 2009.

Over the medium term, the government needs to continue with the restrained fiscal policy of recent years and allow an adjustment in the exchange rate in order to limit a decline in reserves and maintain external sustainability. Management of the windfall revenues saved during the commodity boom also needs to be improved. Among the key structural challenges that remain, the key ones include ensuring the integrity of the public financial management, adequate expenditure mix for sectoral service provision, strict control over the size and performance of the civil service, and transparency and accountability in budget management.

To stimulate private sector investment and job creation, particularly outside the mining sector, the critical priorities are maintaining law and order, establishing a level playing field and improving the business climate, especially through opening more markets to competition, commercializing parastatals, reducing the regulatory and licensing burden, clarifying property rights (especially for land. Developing infrastructure – electricity, telecommunications, road and other transport – through private sector involvement and greater efficiency of public investment is also a crucial precondition for accelerated private sector-led growth.

Such divergence of views is observed both in and outside China, but recent developments are likely to shift views in favor of a bottoming out. The fiscal and monetary stimulus appears to be working, with sharply increased credit growth, purchasing managers index (PMI) at a level signalling expansion for the first time since the middle of 2008, car sales at record high, real estate transactions picking up strongly, and fixed investment accelerating robustly. The fiscal stimulus, in our view, is helping the economy bottom out while, at the same time, advancing the rebalancing of growth the authorities are committed to. With economic activity bottoming out, the authorities will also feel emboldened to press ahead with rebalancing by enabling the further development of the service sector, by encouraging private consumption, especially in the rural areas.

Ansan, you are right that according to our analysis, Cambodia is likely to be hit hardest by the crisis in East Asia. And the reasons for this are threefold. First, Cambodia was an economy that was already "overheating" just prior to the crisis -- thanks to large capital inflows which could not be sterilized by the central banks. As a result, credit growth was rapid, leading to rising real estate prices and generally higher inflation. So even in the absence of a crisis, it is clear that Cambodia growth and macroeconomic policies were not sustainable and slowdown was inevitable. Second, the crisis hit Cambodia hard because its main export industry, garments, relied heavily on the US market (80 percent of Cambodia's garment exports went to the US), which was at the epicenter of the global financial crisis. Tens of thousands of workers in garment factories -- many of them women -- have been thrown out of work. In addition tourism has been hit hard -- some suggest that advance bookings for hotels and trips to Siem Reap have decline by more than 40 percent.

Thus, Cambodia has the uneviable task of adjusting not only to the external crisis, but also has to cool its own internal macroeconomic "overheating" -- and both these adjustments means that its economy could possibly contract in 2009. Of course, we hope we are wrong -- because any recession in an economy has serious repercussions, but the implications are all the more serious in a low income country such as Cambodia.

Unfortunately, being a low income country, Cambodia has very few resources to combat the crisis. I hope that the international donor community, including IDA (the interest-free loan window of the World Bank), provide additional resources to Cambodia so that it can increase public expenditures on programs to protect the poor from the worst effects of the crisis. In addition, the authorities in the country need to make sure thay reorient their public expenditure program away from low-priority programs and toward social safety net programs targeted at the poorest groups in the population.

The bottoming out in China offers a glimmer of hope for commodity exporters in the region. Indications of strategic stocking in China have also helped support the price of copper over the last couple of months. While these developments should help recovery in Mongolia, the authorities' pursuit of the policies to which they have committed under the IMF-supported standby arrangement and World Bank-supported program will be important for setting the stage for sustainable growth over the medium term.

See figures released today from China's National Bureau of Statistics. While growth in real GDP slowed to 6.1 percent year-on-year in the first quarter of 2009, there are strong signs both in today's numbers and recent developments that the economy is bottoming out. Notably, industrial production expanded at a much faster pace in March than in January and February; car sales are at a record; real estate transactions have risen sharply; credit growth has accelerated; and the purchasing managers index is indicating an expansion.

As our report indicates, governments in the region are battling the forces of global recession. The authorities have eased monetary policy (including by cutting policy rates and injecting liquidity as needed) and are implementing fiscal stimulus packages. In fact, the size of the region's stimulus package at 3.6 percent of GDP (including government-influenced investment at about 9 percent of GDP) is one of the largest in the world, and is contributing to offset the sharp contraction in global demand. Thanks to policies pursued since the 1997-98 Asian financial crisis, banking supervision has been strengthened substantially and banks were in very good health before the financial crisis accelerated in late 2008. The solid buffers erected after the previous crisis and the proactive policeis ensured that East Asia emerged relatively unscathed from the financial crisis, with only two small banks failing.

Excellent question!
Every now and then we have anecdotal evidence of this phenomenon especially in the aftermath of natural disasters. For examples, after the Hurricane Mitch in Central America and the recent cyclone in Myanmar, remittances from overseas migrants rushed in to help affected families while government help was slow to come in raising precisely this criticism. That said, remittances are only going to benefit families that have migrants abroad so they cannot help all the affected families in a post-disaster situation. This also applies to normal times, remittances will only benefit families that have migrants abroad. And the number of such families is very small—only 3% of world population are international migrants. Private funds such as remittances should not be expected to serve public needs. For that, public funding is necessary.

The second part of your question, how will development policy change if remittance levels continue to fall, is harder to answer. For sure a decline in hard currency remittance flows would create external financing gaps in many remittance dependent countries, particularly small and poor countries. Also, to the extent that remittances provide a safety net to a significant number of poor families, a decline in these flows would challenge governments to step in.

Remittances can help reduce poverty of recipient households and, perhaps, some other households in the neighborhood. But remittances cannot be a substitute for growth and employment generation efforts at home.

Regarding your 2nd question, I do feel that there is need for a one-stop shop that maps remittances and migration, examines ways to reduce remittance costs by introducing new technology, leverages on remittances for financial access of households, and for capital market access of institutions/countries. For official aid (about $100 billion a year), there are tens of institutions; for FDI, there are several institutions; however, there are only a handful of individuals focusing on remittances.

Until remittances were “discovered” and explained as the most tangible and, perhaps, the least controversial link between migration and development, not many institutions to my knowledge looked at migration as a development issue. In the World Bank, our focus is on development, and we believe that migration can be leveraged significantly for improving development outcomes. We are working closely with individual experts, and other institutions worldwide to understand the links between migration and development.

1.I welcome the recent decision by the U.S. to allow remittances to Cuba.
2. Although cell phone-based remittances look very promising, AML/CFT regulations are constraining their growth in the cross-border market. Card-based programs, especially stored value cards, seem to be doing well.
3. Remittances growth has been positive in the Middle East-to-South Asia corridor. Also domestic remittances in China and India will remain robust.
4. I have noticed an increase in price competition, but not necessarily because of the crisis-related slowdown in remittance flows. The market is definitely getting more competitive and this is a structural change not a short-term phenomenon.

This is probably true for all balance-of-payments items including world exports and world imports (and probably provides direct evidence that there is life outside earth;)). In general inward flows tend to be better recorded than outward flows. Also there is often confusion between personal remittances and trade- or tourism- or investment- or private charity-related small transfers. Different countries have different reporting standards - some (e.g., South Africa) insist on reporting all cross-border flows without any threshold for exemption, and others (e.g., Japan or EU countries) have high thresholds below which remittance transactions do not have to be reported. Then there are informal flows that mostly go unreported.

1. Please see my blog post at http://peoplemove.worldbank.org/en/content/remittances-reduce-poverty and the brief "Leveraging Remittances for Development".

On the impact on the host countries, research conducted for the Global Economic Prospects 2006 report on the economic implications of remittances and migration showed that migration benefits the countries of origin, the countries of destination as well as the migrants themselves -- a win-win-win solution.

2. In poorer families remittances are often used for consumption. But after basic consumption needs are met, remittances are also used to finance education, health, housing and small business investment. Some studies show that there is little difference between the use of remittances by recipient households and the use of additional income by households that don't receive remittances. However, I think remittances are value-added money. The added value comes from the migrant's close involvement in how his/her money is spent by the recipient. Remittances usually come with instructions on how to use the funds.

3. Not that I know of.

Although the number of new migrants appears to be significantly smaller this year than the last year, the number of returning migrants is still relatively small compared to the large stock of existing migrants abroad in South Asia as well as other parts of the world. I don’t think that the stock of migrants will decline any time soon.

Regarding your 2nd question relating to legal channels of remittances, my view is that people use Hundi and Hawala not because they want to violate the law, but because the formal channel is either not accessible or is too costly. Sometimes, social restrictions on the mobility of women who receive remittances require that remittances are delivered to the doorstep.

At the household level, the development impact of remittances, whether through informal or formal channels, is significant. At the macro economic level, however, Hundi or Hawala channels are always associated with capital flight, mostly because the recipient country has exchange controls.

You are right. The counter cyclicality of remittances varies from country to country, typically depending on the income level of the remittance recipients. In poorer households, remittances are mostly used for consumption, whereas in the relatively better off households, there is also an investment motivation. Remittances tend to be more counter cyclical when they are for consumption purposes than when they’re for investment purposes. That to a large extent would explain the regional differences in counter cyclicality.

We have discussed the reasons for resilience of remittances in our blog post Remittances expected to fall by 5 to 8 percent in 2009. Regarding the short-term versus the long-term resilience of remittances, you’re right that remittances might fall further if the crisis becomes deeper or lasts longer. That said, the decline in remittances would still be smaller than the decline in private capital flows to developing countries. Also, it is worth noting that remittances tend to be persistent over time mainly because the stock of migrants tends to be persistent and migrants send only a small portion of their income as remittances.

We have answered this question in our blog post Remittances expected to fall by 5 to 8 percent in 2009.

To quickly summarize, migrants are trying to stay on in destination countries despite weak job markets and lower pays there because the situation back home is often worse.
They are trying to absorb the income shock if any by skipping a meal or sharing accommodations to be able to continue to send remittances because every dollar saved is worth a lot to the family back home.

Also, as immigration controls have been tightened in many destination countries, migrants are discouraged from returning home because they know they can’t go back so easily when the situation improves.

Finally, in migrant destination countries facing crises and weak job markets employers will evaluate hiring and firing decisions on a case by case basis. Left to themselves no employer would want to hire only native workers and fire only migrant workers. Instead he or she would evaluate the contribution of the worker relative to the cost of hiring the worker, and make a decision about hiring/firing. Migrant workers are typically cheaper, more flexible and more productive. For an employer facing falling revenues, it would not make sense to fire only migrant workers. This is the first part of your question.

For answers to your questions 1 and 3, see my answer to Helena Swanson-Nystrom.

For question 2, you might want to take a look at this post on Migrant Remittances on my blog People Move. This blog post also has a link to the international remittances agenda. As I mention there, remittances can improve financial access at the household level and access to capital at the institution/country level. By reducing remittances costs billions of additional dollars can be channeled to developing countries. Thus, these small sums of money sent by millions of migrants can generate large development impact.

Regarding your final question, the African Union has identified the African diaspora as the 6th regional economic community of Africa. The AU can leverage the diaspora for Africa’s development.

I share your sentiment that if China can grow at 6.5% in this gloomy global environment that there is no big problem, compared to other parts of the world. Also, China has the fiscal strength to keep up stimulus into 2010. But fiscal stimulus cannot be the sustained source of growth for the indefinite future. You need to keep increasing the deficit each year to provide new stimulus, and after a few years the deficit would rise to unsustainable levels. So, we see the stimulus as a temporary measure to get through 2009 and perhaps 2010. Longer term, China needs new sources of demand. There should be some recovery in global trade and exports will continue to be important, but they will not play the same role as in the past. For this reason we argue that China should favor expenditures that both stimulate the economy in the short run and lay the foundation for sustained growth in the longer term. Increasing spending on health and education, for example, will reduce household vulnerability and enable them to use more of their income for private consumption and less for savings.

The government’s "RMB 4 trillion package" emphasizes infrastructure and other investment, financed in part by government budget spending, and in part by bank lending. In addition, the government has taken some additional, more consumption oriented measures. I think the government’s policy response to the downturn has been right: forceful, with spending that can quickly lead to additional demand, activity, and employment. Indeed, I think the forceful stimulus policies have been key in dampening the downturn, by providing support for activity and sentiment. On your other question, we have in recent years written quite a bit about the rebalancing that China’s government is trying to achieve, most recently in a mid term evaluation of the 11th 5 Year Plan. In order to make growth more sustainable economically, environmentally, and socially, China needs to get more growth out of services and domestic consumption, and less growth from industry, investment, and exports. This requires reforms in several areas, including on fiscal policy, pricing, in the financial sector, and the labor market.

The global crisis should accelerate the Western development drive. First, China can now shift to a stimulative fiscal policy and spend more money on public infrastructure, including on development in the interior parts of the country. Second, in the future China’s growth will depend less on exports and more on domestic demand. To produce for the domestic market, being on the coast is not a big advantage. Interior locations have lower cost land and labor, so they have some advantage in producing for the domestic market. There are already stories in the press about firms and workers move to inland cities because opportunities are better there than in the depressed coastal areas.

Small and medium-sized developing countries are going to be badly hit by the global crisis. Many of them will have negative growth in 2009. There are some cautious signs that big economies such as China and USA are reaching the bottom of their cycles and will start to recover, so I am hopeful that most developing countries will have positive growth in 2010. Unless your country has a vast amount of reserves, it is appropriate for developing countries to let their currencies devalue, which provides some stimulus, particularly through import substitution. Fiscal stimulus is also good, though each country needs to look carefully at its debt situation and what it can afford. As in the case of China, we recommend that much of the extra fiscal spending go into the safety net because inevitably many jobs will be lost and it is important to protect people’s livelihoods during this difficult year.

I think that, despite the strong headwinds from the global recession, China’s economy will continue to grow this year, supported by stimulus policies. I think exports and market based” investment will likely remain very weak. However, overall investment is holding up because of the impressive expansion of infrastructure and other government-influenced investment. Also, car sales are doing reasonably well, growing year on year in the start of 2009, in part because of government subsidies and tax brakes. Al in all, China’s demand for commodities such as steel and nickel should continue to grow, although demand growth will not be as rapid as it was in previous years.

We will be publishing an updated poverty assessment within a few weeks (keep an eye out on our website). Among other things it presents evidence that health shocks are one of the main factors driving people into poverty and that fear of health expenditures is a prime reason for high savings. The first stage of China’s stimulus was focused on infrastructure, and I think that was a reasonable response to sudden decline in industrial production. There are more opportunities for large-scale spending and job creation in infrastructure construction than in social services. But the government quickly followed up with an 850 billion yuan program to expand health insurance to 90% of the population, as well as enhanced spending for education and the safety net. This is a recognition that to make a transition to sustained growth based more on consumption will require improving these social services and reducing household vulnerability.

In this global crisis the countries of the world face a fundamental choice as to whether we continue with globalization and economic integration or whether we go backwards into more protectionism and isolation. While the crisis is painful, I hope countries learned the lesson from the Great Depression that strongly reducing integration at this point will certainly make matters worse. The lesson I take from the crisis is that we need stronger global institutions to manage globalization. That includes greater trade liberalization and enforcement of trade rules through the WTO; a stronger role for IMF in surveillance and oversight of financial supervision; and reformed World Bank and other multilateral development institutions to help poor countries manage these cycles and invest for long-run development. To be more representative, the global institutions will require governance reform that enhances the voice of developing countries.

In our World Bank scenario of 6.5 % GDP growth in 2009 (the IMF’s latest projection is not very different, at 6.7 %), a full 4.9 percentage point comes from what we call "government influenced" spending: investment decided on by the government and direct government consumption. This is in large part because of the government stimulus package that Jue Zhang was asking a question about above. Not all of this "government-influenced" spending is actually financed by the government itself. A major part is financed by the banking system. In any case, apart from the government influenced spending, we think that household consumption will continue to growth, although at a slower pace than in 2008. We think "market based" investment—investment by companies, state-owned and private ones—will be very weak this year, in response to a weak outlook for sales and profits and emerging spare capacity, while external trade will on balance subtract from growth because imports will not do as badly as exports. Thus, in all, China’s growth in 2009 is highly dependent on stimulus from the government.

We project that China’s overall imports will shrink by about 4 % in 2009, in real terms. Part of China’s imports (about 40 procent) are used as input in the "processing sector", the rest is used in China’s domestic economy. I think that processing trade will do worse than "normal trade" this year, as the international economic and trade cycle is very unfavorable. I am not sure, but I think that in the case of imports from ASEAN, processing imports make up a fairly large share. That would suggest that the prospects for China’s imports from ASEAN are not very good in 2009. Having said that, I think that, overall, ASEAN’s exports to China are likely to do better this year than ASEAN’s exports to other parts of the world. That is because demand in holding up better here, in large part because of the stimulus plan.

On balance I think that the interest of Chinese companies to invest abroad and "go global" will increase, not decrease. Many Chinese firms have been hurt financially so of course there will be some examples where Chinese firms pull back from potential overseas investment. But we project that China will continue to have large trade surpluses, creating an ever-growing pile of reserves that needs to be invested abroad. Chinese long-term demand for minerals and natural resources has not diminished. And now many Chinese companies face weakened investment and profit opportunities at home. So there are still strong factors in place that will push Chinese investment abroad.

The official urban unemployment numbers do not give a good picture of the labor market problems in China, because many groups, including migrants, are not eligible to be registered as unemployed. More generally, unemployment is a difficult concept in a country like China, with such a large distinction between the urban and the rural area.

Therefore I personally find it useful to look at non-agricultural employment, because I see agriculture as the form of employment of last resort. Our very broad calculations based on recent trends suggest that every percentage point less non-agricultural GDP growth means about 5.4 million fewer non-agricultural jobs. Thus, based on our scenario of 6.5 % GDP growth for the year as a whole, compared to potential growth of around 9.5 %, and with growth particularly subdued early in the year, I would say the "shortage" of non-agricultural jobs this year is about 17 million, peaking at perhaps 20-25 million early in the year.

Guangdong is probably the most severely affected province because it had a major real estate boom as well as the export boom, both of which are now over for the time being. Beijing is suffering from real estate slowdown, but it is not a major exporting region. There is not much feeling of a slowdown in Beijing, except for reduced construction activity. The stimulus package is starting to have real effect. The provides stimulus to some specific industries, but also has general spillover effect on consumer confidence and purchases. Anecdotally, we hear that many workers in Guangdong have accepted reduced compensation and that some factories have reopened to produce for the domestic market. I am impressed by the resilience of Chinese firms and workers. We will see some firms finding new niches in both an expanding domestic market and a reduced but still important external market. That is why we are cautiously optimistic that as the year progresses we will see gradual recovery. It may be strongest in central provinces at first, because the hit to the export economy in Guangdong is very serious. But with a lag I think we will see Guangdong firms coming back strongly, oriented more to the domestic market.

I think that, given China’s solid economic fundamentals, combined with the room to stimulate demand through government stimulus policies in this tough period, it is not likely that we will see negative growth in China. But, it is not completely impossible. The World Bank’s projections for world growth are among the most bearish, foreseeing a decline in global growth of 1.5 % this year. However, the global picture could conceivably be even much worse, in which case we will have to go back to the drawing board to do our forecast for China.

On balance I think the crisis is, ironically, good for China’s environment. We already have some preliminary data indicating a large increase in energy efficiency in 2008, because the most energy-intensive, polluting industries declined so sharply at the end of the year. It is true that some of the stimulus package is trying to limit the damage in those sectors, but I think that is reasonable because too rapid decline is difficult. I am also encouraged that the package includes high-speed passenger rail, urban public transport, waste-water treatment, and energy efficiency projects. In responding to the crisis, China is likely to grow now based more on services and less environmentally polluting sectors. It is true that the environmental costs of producing GDP are still high, but that is a subtraction from the level of GDP each year not from the growth rate. Unfortunately, no statistical agency calculates cost of pollution year by year. If we had those data, I bet the costs decline during 2009 because of the retrenchment of heavy industry and positive environmental projects. If that is true, then the growth rate adjusted for environmental costs would be higher than the 6.5% projected growth rate of GDP.

We can never be sure, but personally I am pretty optimistic about China’s economic future in the medium and long term. China is still at a rather low level of overall development, with GDP per capita less than 10 percent of that in the US and Western Europe. That means that there is still a lot of room for further catch up. Of course, many countries have this room for catch up but do not see it materialized. However, China seems to have set in place the conditions—in terms of institutions and policies—that are good for growth. As a result, China has seen strong, steady growth over the last decades. Barring major upheaval or big policy mistakes, I think China should be able to continue to grow at robust rates in the coming decades, presumably close to the rates in the last decade. The coming few years will be very challenging, though, with a very weak global economy. This adds urgency and importance to the project of rebalancing the way that the economy is growing (see my answer to Jue Zhang above). But, with the right policy response, there is no obvious reason why China cannot go back to impressive rates of growth in the medium term. By the way, in my understanding, the four “little dragons” have done very well and are still growing.

I am not sure I fully understand your first question. The PPI is the factory gate price, in the sense of distinguishing it from the raw material price (input into the factory) and the CPI (retail price).

The government found that in the 4 provinces where it piloted subsidizing rural consumption by 13 %, sales of the subsidized goods increased 30 % in 2008. You have a good question about the amount of money the government has set aside for the nation-wide scheme in 2009. I have not seen mention of a limit to the total amount the government plans to spend on it, which suggests that it is open ended. The scheme will run until 2012.

It is very difficult to have good information on capacity utilization in the different industries, and it is especially difficult to have reliable information on recent trends. I do not have such recent information. I am afraid I cannot help you with this.

Thank you for your question. China is currently implementing fiscal and monetary stimulus measures that boost domestic demand, growth, and employment. Much of this is good for other countries, because it tends to raise China's imports. If the stimulus leads to more investment in the export-oriented manufacturing sector, rather than domestically-oriented investment (such as infrastructure oriented on people instead of industry) or consumption, the stimulus may end up creating more manufacuring capacity and international competition. In that case it may be a net negative for other producers (although it may over the longer term still be a net positive for the world, because China is an efficient producer; it would allow people globally to have access to more good-value-for-money products, raising their living standards). Looking at the stimulus package, the bulk of the stimulus spending seems domestically oriented, with a lot going into areas like public transport, public housing, and health care. Thus, I think that on balance, China's stimulus spending is a plus for the world.

There are a lot of similarities between the effects on China and on Vietnam. Like China, Vietnam had a property boom that began to deflate in 2008, starting the slowdown. This was then compounded by the global economic crisis which has slowed Vietnam's exports. So far exports have been about flat this year, which is a good performance relative to other Asian economies that are seeing large falls in exports. But still, the external sector does not provide much impetus for growth. Vietnam has a stimulus package that during the course of the year could grow to 2-3% of GDP about the same magnitude as China's. With fiscal stimulus replacing some of the lost demand from abroad, we see Vietnam's GDP growth around 5.5% in 2009. Like China, this is subdued compared to recent years, but very positive in the global context. The one main difference between the two countries is that Vietnam has relied more on capital inflow in recent years while China is a big capital exporter. If foreign investment diminishes for Vietnam that is likely to slow the growth propects for the next few years.

Hi John, nice to hear from you. I would think that the weakness in market based investment in real estate and, until recently, car sales, have affected steel production a lot. Weak exports, and their impact on investment in manufacturing, also clearly affect steel consumption. But I would think that real estate is probably a more important driver of the slowdown in steel demand in the second half of 2008. Infrastructure is pretty intensive in steel. Indeed, infrastructure is probably much more intensive in domestic steel than investment in manufacturing, where the machinery is more likely to come from abroad. Moreover, domestic car sales seem to be recovering, in no small part because of the stimulus package. In all, it may depend on the composition of market based investment. If real estate holds up (as in will not fall much more from now), manufacturing investment declines and infrastructure investment accelerates, while car sales also do all right, I could imagine that this is a good composition of spending for domestic steel.

I share your sentiment that this is a good time for developing countries to "get back to basics." Most employment is in agriculture or small and medium enterprises (SMEs). That was true before the crisis hit, and even more true now. So, as countries develop plans to deal with the crisis it makes sense to keep an eye on these two key sectors. The World Bank can help developing countries in various ways. Some countries, such as Mongolia, have been hit with sudden drop in export earnings and with withdrawal of private investment. The World Bank can help with quick-disbursing support to balance of payments and the budget. We can also help with design and funding of the safety net, because many workers will lose their jobs this year. I also think it is important not to lose sight of the longer term development agenda so that investment in infrastructure, the traditional business of the Bank, is still important. We are trying to increase projects in support of agriculture and help the banking system get funds to SMEs.

Shipbuilding, in China and abroad, has been affected very heavily by the global crisis. While this creates serious problems for the companies and people involved, there is only so much that the government can do. One problem that has amplified the downturn in shipbuilding is the breakdown of trade credit. It is here that governments, and international institutions, can do something. Several governments are actively trying to provide help here. China's government has just recently reached agreement with the IFC in this area.

LK: You are right to point out that the FAI data includes asset sales such as land purchases. As of now, we strictly speaking cannot know for sure how much of the increased FAI in the areas like railways and other infrastructure is capital formation as opposed to from asset transactions. However, the acceleration in "government influenced" investment is probably large enough to assume that this is not all from land sales. Moreover, we have seen other indicators, such as on cement production, and from the several PMIs, that indicate that there is an impact on real economic activity. Having said that, I would caution against assuming the tough time is over and things will get steadily better from here. As we mention in the quarterly, we think that, while the stimulus package provides a lot of useful support to activity and sentiment, China's economy cannot rebound to the rates of growth anywhere close to what we were used to unless the world economy recovers. And we don't think that will happen very soon.

Regarding your second question, monthly IP data is already available as levels, I think, albeit in the form of year to date. The same is true for GDP. But, it is indeed cumbersome for the users to have to calculate the monthly and quarterly data. I understand that it is in the long term plans of the NBS to move to normal quarterly and monthly numbers, but I do unfortunately not know when this may happen. How robust are the WB's q/q estimates. I would say, there are quite a few decisions/assumptions going in them, in terms of the length of period, the type of seasonal adjustment package, and others. We felt sufficiently comfortable to publish the number, but clearly, other estimates of the SAAR number range from 1 to 3 % and, given the margins of error, are all basically the same.

It will be difficult to make the adjustment quickly but the basic direction of adjustment is clear. China will lose millions of jobs in manufacturing and it will be hard to recover these in the next couple years. Most job creation will be in services and in SMEs, so it is important to keep these sectors in mind. We recommend that China put more public resources into social services such as health and education and in the safety net. Those expenditures help people get through the immediate crisis. We also think that they will gradually reduce vulnerability of households and enable them to spend more of their income on consumption. Consumption everywhere is primarily services, so this will do a better job of creating jobs than investment in manufacturing. The banking system needs to continue to reform so that it can do a better job lending money to SMEs. If it does a good job of this, there should be no big problem with NPLs in the future.

China has seen a successful industrialization and integration to the world economy, to such an extent that, starting from a situation with surplus labor, the capacity to produce has grown faster than the capacity to consume because wages--and consumption--have not kept up with profits--and investment. The government has been trying to rebalance the economy, getting more growth out of domestic consumption. As you note, so far the success has not been very large. I think the solution to this is to get more growth out of labor intensive service activity and less growth out of capital intensive industrial activity. As per my answer to Jue Zhang, this requires an array of policies including on pricing of inputs, the financial sector, fiscal policy, and the labor market. If you are interested in more detail on this, please check out our evaluation of the 11th 5 year plan.

Regarding your first question, I have seen reports on several of the individual initiatives, but do not have a comprehensive picture. According to the press reports I have read, they have an impact. And, several are designed to expire, so that people have an incentive to use them instead of save them. On the other hand, there have also been reports of people trying to trade them with eachother. Overall, I think they have a beneficial impact, but the macro impact is unlikely to be significant.

Regarding your second question, we think that cutting income taxes is not that obvious now. There is a discussion on increasing the treshold. We don't think it will have a major impact and will benefit higher income people as much or more as the medium income groups. Your point strengthens the concerns in that regard. There could, though, be a case for lowering social security contributions, which are paid by a much larger group of people, including many migrants.

Regarding your third question, yes, there is such a danger. Some infrastructure projects are indeed not very labor intensive at all. We think that there is a point when further general investment oriented stimulus is not the most appropriate response to further growth downgrades. As I argue in my recent blog, one response would be to do more consumption oriented stimulus. The other would be to not do more general stimulus, but to focus more on the medium and long term issues, and to alleviate the consequences of the downturn by via the social safety net.

Regarding your fourth question, the government has taken some useful steps in strengthening the presences and spending of the government in the areas of health, education and social safety. There is still more to be done.

If China’s growth rate comes in lower than expected, the country has a number of tools it can use. It has plenty of fiscal space to increase spending. We still caution the government to make sure spending addresses real needs. If you build infrastructure that is not really needed, it creates jobs today but has no payoff tomorrow. So, there may not be too much scope for increasing infrastructure spending beyond the current plans. But there is scope to increase spending on social services and the safety net. This is a form of consumption, and also encourages more household consumption. This kind of growth will also benefit China’s trading partners, because it will increase demand for imports. For developing countries like Cambodia the global crisis provides some useful lessons. I would be careful about liberalizing capital flows until there is a strong domestic financial system. But I still think direct foreign investment is useful for developing countries. It is likely to be low for a couple years, but then come back.

There are a lot of interesting examples of public-private partnerships. For example, in quite a few cities it has been possible to get private investment in water supply, but the public sector -- in many cases with a WB loan -- has to provide the sewers and collection system. It is too risky and political for private firms to develop the sewer system throughout a big city, but the private sector can easily and efficiently do water treatment. The railway is also moving toward public-private partnerships with private investment in engines and cars and public investment in the tracks. Intuitively, it makes sense for the public sector to investment in the monopoly parts of the system such as tracks, sewers, power lines while encouraging private investment on a competitive basis for the parts of the system that are not inherently monopolies.

The recent sanctioning of firms from China and other countries was based on collusion in the Philippines so our China country office is not directly involved in that case. For the World Bank projects in China we work closely with the Ministry of Finance and central audit bodies to protect against risks of corruption. The key aspects that go into anti-corruption efforts at the project level are competitive bidding to award contracts, supervision of the bidding process by World Bank office, supervision of physical implementation of the project to ensure quality, and auditing of project accounts.

The stimulus measures announced so far are increasing domestic demand significantly. In our understanding, and in our scenario, China in 2009 is likely to see imports fall less than exports, largely because of the stimulus package. In that sense, the stimulus package is a plus for the world economy. A significant portion of this is investment. However, a lot of investment coming from the stimulus package is in "people oriented" infrastructure, such as public transport, public housing, and sewage, rather than industry oriented infrastructure such as ports. Some of the spending will end up as benefiting manufacturing. How this will play out? It depends a lot on the world economy. Several multinational companies are reconsidering relocating production. China happens to be a very competitive place to produce, and it may become even more competitive in the future. That will challenge producers in other countries, although it benefits consumers, who get good value for money products. However, my point would be that this is happening largely regardless of the stimulus policies. I think the stimulus policies are not primarily geared to boosting industrial capacity.

To be honest, I am not sure. Until the crisis hit, there was quite a bit of pressure and some momentum to move on reforms that make moving to the cities--especially moving permanently and with the whole family--easier. Because of the crisis, there is now much less net migration into cities. In fact, there may be net migration back to the country side this year. Thus, the economic pressure for migration oriented reform may have decreased temporarily.

Developed countries like the USA are still very productive. USA produces much more manufacturing value added than any other country. But I do think it was a problem that the US developed such a large trade deficit. On the other side, I don't think it was good for China, Japan, and Germany to build up such large surpluses. So, while it is painful, everyone will be better off with more balanced trade among these major economies. That requires the US to consume less and save more, and the surplus countries to consume more and save less. With those macro adjustments, there should sufficient growth and employment for each country. Up until now, it was not possible to get the major economies to coordinate macro policies to get a balanced outcome. Hopefully the crisis will lead to a more serious effort to coordinate policies.

There has been some development of social businesses such as microcredit in Western China. It seems to be expanding quite rapidly suggesting that it is filling a need. Growth based on domestic demand will provide more opportunities for inland locations. Efforts to get credit to small firms and households and to ensure that people have good social services will create a social foundation for less developed areas to take advantage of the new opportunities.

We also think there is a job gap, as indicated by my answer to MP above. I agree, the weak economy is creating a lot of job market pressures. What this means for social stability is another matter. The government has been concerned about this, and is quite pro active in dampening it in various ways, ranging from economic stimulus to various types of labor market intervention. However, so far, social tension, if it happened, seems to have been quite local and specific, usually in response to a specific issue such as non payment of wages. In my personal view, the probability of significant systemic social tension is quite modest.

It is always difficult to calibrate the contribution of any single reform. I do think that making households more relaxed about spending by strengthening the role of the government in health, education, and social safety is important to lowering the household saving rate. There is more to increasing domestic consumption than this--see our mid term evaluation of the 5YP report on rebalancing for the array of policies--but it is an important element. In that area of strengthening the role of the government, improving medical insurance is key. Raising the government's contribution to medical insurance, as planned under the health care plan, should have a (statistically) significant contribution. I don't think we can expect miracles from one policy. But, eventual further raising the government's contribution to medical insurance to levels seen in mature market economies should have an economically significant impact on domestic consumption.

China has a lot of things going for it. Chinese families (though not necessarily the government) invest a lot in their children’s education. China has a particular model of globalization: it is very open to imports and direct investment, but not to portfolio capital flows. Right now, this looks a pretty smart strategy. China also has a pragmatic approach to infrastructure: the cost of power and using expressways and ports is relatively high compared to other developing countries. The result is that infrastructure pays for itself and the country has been able to expand its networks very quickly. See my paper on lessons of China for more details.

The November 9 stimulus package contains commitments to carry out projects infrastructure projects on public housing (RMB 280 bln), rural infrastructure (RMB 370 bln), transport (rail, airports, and roads) (RMB 1800 bln), health and education (including building schools and hospitals) (RMB 40 bln), the environment (including water and sanitation, sewage facilities, and restoration projects) (RMB 350 bln), technological innovation (RMB 160 bln), and post earth quake reconstruction (RMB 1000 bln). The number in (brackets) are estimates by the government on spending in these areas.

We think that the stimulus package will be very important in supporting growth in China in a very difficult year internationally. Our GDP growth forecast for 2009 is 7.5 %. It is always difficult to make comparisons. But at least we can say that the projects that are secured and advanced by the November 9 decision will be important to support growth in the short run and, in the long term, help China support some important long term objectives and improve people’s living standards. These measures in this package are not directly geared at helping industry, although it is fair to say that they may help industry indirectly (better railways, better education).

We have received several good questions on health: the formal 4 trillion Yuan package has only a modest amount for health: about 10% will go to health and education. But the package is mostly for infrastructure construction and the need to construct new health and education facilities is not great. There will be a separate decision soon about the total budget for 2009. In recent years the central contribution for health has been rising rapidly, and I expect that to continue in 2009. One difficult year of growth will not affect that. If, however, China has several years of slower growth then that would inevitably affect the provision of services. This global downturn is an opportunity for China to focus more spending on domestic needs, of which a stronger, more rational health system is a great example. If the government spends more recurrent budget on health and education that will be a direct stimulus to the economy and also lay a solid foundation for the future by making people feel more secure and building up the country’s human capital. So, I think that it is important to continue the health system reform and put more central resources into it.

China stimulating its economy and maintaining a healthy growth rate is very good for the rest of the world. Because China is quite an open economy in terms of imports, part of its stimulus will spill over and create demand in other countries. Some of China’s imports are parts for processing and then re-export, so they are based on final demand elsewhere. But the majority of imports is not of this kind and is related to China’s domestic demand. Based on the stimulus package, our forecast for 2009 has domestic demand growing at 8.9%, and import growth (excluding processing) at 10.7%. The World Bank forecasts that global trade overall will decline 2.5% in 2009, so China is definitely a bright spot in terms of providing stimulus to the world economy. Its demand will help the wide range of countries that export to China – products from petroleum and minerals, to food, to high-tech machinery and software. An important note of caution, though: China is not important enough in global final demand to fully offset the declines that are projected for the US, Europe, and Japan. China’s continued healthy growth makes things better than they would otherwise be for the world economy.

That is a good question. In our view “strong macroeconomic fundamentals” mainly refers to (i) strong fiscal and external positions and cushions; (ii) the capacity to growth at relatively high rates without showing the symptoms that emerging markets often suffer from: high inflation and/or external deficits. As to your second question, I would say that, in terms of the ability of policy to respond to boost growth in the short run, income gaps do not really come into play. However, income equality, especially between rural and urban areas, is one of the major issues, or “imbalances” that the medium term project to “rebalance” the economy is meant to address. In short, “rebalanced” growth, growth that relies more on services and consumption, instead of industry, investment and exports, is more labor intensive. That means that it will create more urban jobs, draws in more migrants from the country side, and thus raises labor productivity and income of those left on the country side. In particular, “rebalancing” measures such as increasing government spending on health, education, and social security help boost disposable incomes and living standards in the rural areas.

Most of the steps taken in China to prevent direct impact of the present global financial crisis have actually been taken in the past. China’s banks did not buy significant amounts of "toxic" assets. Moreover, China has capital controls, which means that the pressures on international financial markets do not exert a strong influence onto China’s financial system and sector. Very high national saving for an extended period of time is reflected in high foreign reserves and a lot of liquidity in the banking system. China’s real economy is open to the world, however, and this is were the spillover of the international crisis enters China, via lower exports and reduced confidence. The main response of China’s government to the downward impact this will have on overall growth and employment is too shift to expansionary macro economic policies, with an easing of the monetary stance and, importantly, expansionary fiscal policy, with substantial increases in government-influenced spending and some tax cuts. The aim of these policies is to boost domestic demand, in order to offset in part the netative influence coming from the international crisis.

Currency policy is complex, with many considerations playing a role. We think that China’s decision to strengthen the link with the US dollar while the dollar was appreciating strongly against most other currencies globally contributed to financial and economic stability internationally (just like a decision not to devalue played a similar role in the wake of the Asian crisis 10 years ago). Going forward, we think that, at a time of a very weak international outlook, China is right to focus on stimulating domestic demand. We also think that China’s fundamental competitiveness position is still good. Therefore, we think it is not very useful to try to “crowd in” market share by lowering export prices on international markets resulting from exchange rate depreciation.

The World Bank has a useful role to play in the current global economic conditions. The Bank’s capital base is sound and we can borrow easily on world capital markets, so that the President of the Bank has said that we could double or triple our lending in 2009 if necessary. There are quite a few developing countries that have fundamentally sound policies but that are having trouble refinancing their external debt in the current market conditions. The Bank can be part of the lending to these countries to get them through the troubled times. Some of that lending will be directed to specific projects in infrastructure and the social sectors to help ensure that development investments proceed despite the global downturn. I also think that the analysis and advice from the World Bank is extremely useful to developing countries in this unique situation. The advice covers both macroeconomic policies, but also important structural issues such as how to strengthen the safety net for the many workers and farmers who will be adversely affected.

The purpose of the SWF is to earn a better long-run return on the large amount of US dollar assets that China has accumulated because of several years of large trade surpluses. Because of the downturns in many equity and property markets worldwide, this is actually a good time for SWFs to purchase assets. It is always a smart strategy to diversify your portfolio, so I would encourage the SWFs to invest in both developed and emerging markets, and in different kinds of assets such as common stocks, real estate trusts, and corporate and public bonds. If SWFs buy assets now, they will play a useful role in helping stabilize these markets, and they will meet their objectives of getting a good long-term return.

I don’t think it is fair to blame developing countries such as China for loss of jobs in developed countries like the U.S. The total net job creation in a developed country is primarily the result of the country’s own macroeconomic and structural policies. If an economy is not generating enough jobs, there are macro and micro tools to correct this. My own view is that job creation depends primarily on the incentives for innovation and long-term growth. In the case of the U.S., things that would help would be reform of healthcare to take the cost off of the employer, immigration reform to ensure a steady flow of workers with different skills (especially the high-tech skills in short supply), fiscal policies and incentives to raise the savings rate, and expanded investment in critical infrastructure (both hard infrastructure such as transport and soft infrastructure such as universities). In the short run trade can accelerate shifts from one type of job to another and that can be a serious problem for particular workers and communities. I favor a forward-looking policy of helping workers adjust. Trying to preserve particular jobs through import protection has always failed in my reading of history.

Right at this moment China faces a serious challenge to quickly reorient its economy away from exports toward domestic needs. In retrospect, China should have started this sooner. If China had more aggressively pursued policies to encourage consumption in the past few years, it would not have built up so much capacity in the export industries and would not have such a difficult adjustment now. Looking beyond the next year, the biggest challenge for the country is natural resource scarcity and environmental degradation. China can turn this crisis to good purpose by using its stimulus package to build for the future economy not for the old model. The infrastructure spending that will go to high-speed passenger rail, public transportation, waste water treatment, environmental clean-up, health, and education will stimulate the economy immediately and also lay a foundation for a greener economic development in the future.

We think that among the key challenges are (i) to ensure that the selection, preparation, and execution of the projects is as rule-based and efficient as possible, with an eye to long-term development needs instead of short term visibility. This task is made more difficult by the large size of the overall package and the speed with which it is meant to be executed. (ii) to make trade offs with regard to the key criteria with which measures should be judged: large short term impact on growth and support for medium and long term objectives. For instance, creating demand for the steel industry is currently a very effective way to boost short term growth. But it does not really help China meet its medium and long term objectives.

I think that so far the slowdown in China is caused by weaker fundamentals. Consumer confidence has held up pretty well so far. But in terms of fundamentals, the property market got overheated and the government put on the brakes. At the same time, processing exports started to slow down. The result has been a sharp drop in the heavy industries related to construction followed by declines in the processing export sectors. It is possible that consumer confidence will now weaken, which would be unfortunate. Hopefully the government's fiscal and monetary stimulus will boost confidence. It is hard to predict when the housing market will turn around. In the prime cities prices have gone up a lot and there needed to be a correction. Now there is a lot of unsold commercial and residential space. If the market works well, prices will come down in response to this slack market. The long-term demand for housing in Chinese cities is high, so I am convinced that if prices come down to reasonable levels that the market will resume. The risk is that developers and banks are reluctant to accept losses and keep prices high in the face of excess supply. In that case the slump could last a long time. Let's hope China learns from Japan's experience with the property slump in the 1990s. It is better to take the losses and move on rather than cling to unrealistic valuations.

China’s exporters of consumer goods are undoubtedly going to face a tough year, with global demand going into slowdown. This means that pressure increases on these producers to upgrade their production process and production package, and cut costs. While this is part of a productive process to restructure and upgrade the economy, it leads to strain and dislocation for the firms and workers involved. In my understanding, the impact of these pressures will be felt largely in China itself. One thing that some countries may feel would be pressures if Chinese firms move up the ladder and become competitors in certain products and markets that they were not active in before.

China’s government is encouraging export firms to upgrade, develop brands, and make other improvements. In addition, the VAT rebates that exporters receive—which are full in most other countries but have traditionally in China only been partial—have been increased recently for several types of consumer goods.

I think that the new land reform is basically positive. Over the next 15 years it makes economic sense for another 150-200 million people to move from the countryside to the cities because they will be much more productive in urban work. China could produce the same amount of food as it does now with far fewer workers. The land reform helps this transformation in two ways. First, to produce with less labor will require consolidation of land into larger farms and mechanization. The new land rules will permit this. Second, many families will want to permanently sever their links to the countryside. Under the new rules they can sell out and move to the city with some money to help set themselves up. There is a risk of a new class of poor landless laborers being created. The best solution to this is to continue to strengthen rural education and health so that everyone has good basic human capital. China has also developed an urban and rural minimum income support program that can be an effective safety net if it is properly funded.

We are often asked whether China can "save" the global economy from going to a recession. Our answer is "not really". China will likely outgrow most other parts of the world in 2009, and China’s growth will be a very substantial contribution to overall world growth in that year. However, China’s economy is—at about one-fourth of the US economy—too small to carry the global economy forward. Forecasts for 2009 are subject to a lot of uncertainty and risk, including the one for China. However, the projection that China will outgrow most other parts of the world in 2009 is in our view quite robust to these uncertainties and risks. Therefore, we think China’s growth will generate a net positive contribution to world growth.

Everyone recognizes that weaknesses in the regulation of complex financial instruments such as derivatives have contributed to an economic crisis that keeps accelerating. But I also like to emphasize that poor coordination of macro policies among the US, Europe, Japan, and China created underlying weaknesses. Without those underlying problems, I don't think that weak regulation by itself could cause such a crisis. That's why financial bailouts in the US, Europe, and Japan seem to have stabilized things to some extent, but yet we don't see much rebound of real economic activity. To really get the global market growing again at a healthy rate will take, first, coordinated stimulus in all the big economies. Second, following the stimulus, emerging markets such as China will have to play a greater role in global final demand. That means more private consumption in China and more government spending on recurrent items such as health and education. The US in turn will need to increase its savings and reduce its trade deficit. With well-coordinated policies, the worst of the global slowdown should be over by the middle of 2009, and the global economy should pick up as we move to 2010.

You are right that cautious Chinese households are likely to reduce the growth of their consumption spending in 2009. We have built this into our forecast - lower growth of private consumption than during the boom years. However, no one can predict for certain how much retrenchment there will be. China can still grow at 7.5% in our view, with healthy growth of household income. Hopefully the government's fiscal and monetary stimulus will boost consumer confidence and convince Chinese people not to pull back too much. Too much worrying could cause a self-fulfilling downward spiral.

Going forward I expect gradual appreciation or stability of the effective exchange rate (that is, the weighted average against the dollar, euro, yen, etc.). So, depending on what happens among the dollar, euro, and yen there could be movement either way in the dollar-yuan exchange rate. But it would be surprising to see any big depreciation of the yuan against the dollar for several reasons. China will still have a large trade surplus in 2009 so it is hard to see any argument for devaluation. Its trading partners are not likely to welcome any such move. In the next few years countries like the US have to reduce their trade deficits and save more; that means surplus countries like China will need to reduce their surpluses. Gradual appreciation to support that is the most likely move.

Good point that the interest rate decline is the biggest in 11 years. I do think the government finds the current global situation more risky than the 1997 Asian crisis. In 1997 the crisis was largely confined to emerging markets and the US economy was still in good shape. What is different this time is that the crisis starts in the US and spreads to Europe and Japan. The coordinated downturn in these three big economies is unprecedented. So I think it is smart for China to respond quickly with fiscal and monetary stimulus. Our forecast of 7.5% in 2009 assumes that the government will respond to the changing conditions. So, we will not change our forecast based on this new interest rate move. That is the kind of good policy response that we built into our forecast. We were also careful to say in our quarterly that policy making for 2009 was not finished: meaning that the changing global situation may call for more stimulus from China.

In today’s globalized world, no country is immune from the crisis. Even if some countries do not have the financial market exposure that would affect them in the first round of the crisis, the slowdown in economic growth which is affecting all major economies will affect Africa since commodity prices will fall, export markets will sluggish, and foreign direct investment will be dramatically cut back. The implications will vary by country but in the end it will mean less export revenue and less income as well as a slow down of investment, particularly if it is foreign finance. One can hope that aid levels can be maintained and that by 2010 economic growth will resume. In the meantime, governments need to do their utmost to protect the most vulnerable.

There is no doubt that with the global downturn the risks of protectionism have risen. Fortunately, at least at the G20 meeting of November 15, world leaders urged an avoidance of protectionism during these difficult times and a restart of the Doha negotiations. Of course, the issue of outsourcing of jobs existed before countries turned into recession, but clearly domestic pressures will continue. This said, free trade still offers the best global opportunity to increase incomes and welfare overall. It is the job of government to shelter those who may be the losers in globalization, recognizing that the global gains are usually significant and positive. It is easy to blame globalization for all economic dislocations, even those caused by changes in technology, consumer demand, or educational requirements. Resorting to protectionism will not solve any of these issues and will be particularly deleterious for developing countries where the bulk of the world’s poor reside.

You’re quite right that decoupling is not an option in the current world of increased globalization. Moreover, it is hard to anticipate a crisis the severity of which is largely unparalleled in the post-war period. Nevertheless, vigilant financial supervision of domestic financial entities makes a lot of sense and overreliance on foreign capital, particularly short term capital, may also prove risky for developing countries. While absolute protection or immunity from global recession is not possible, one should of course diversify one’s exports both by sector and market, and try to avoid excessive indebtedness, which can prove problematic in crises such as the one we’re currently experiencing. Strong macroeconomic management has served a number of countries well in this current crisis, the effects of which many are experiencing despite their innocence with respect to the origin of the crisis. Ministers of finance who have been prudent in their stewardship of the economy will find that they have some room for fiscal maneuver during the downturn and central bank governors that have kept a tight rein on financial entities' indebtedness will also see their efforts rewarded.

Question answered in English, French translation available soon.

The origin of the crisis was in the U.S., where lenders in the housing market took excessive risks. Housing bubbles are not uncommon; however, this particular drop in housing values caused many asset-backed securities to lose their value. This had a cascading effect in financial markets. So in a nutshell, the crisis originated from excessive risk that was not properly overseen by regulators in part because financial markets have gotten extremely interconnected and sophisticated so that it is hard to know who is actually bearing the ultimate risk. This points to the need for global financial regulatory reform.

Question answered in English, Spanish translation available soon.

Interestingly, China has been one of the main global drivers of economic growth. In fact, the outlook for 2009 would be much bleaker were it not for China’s expected growth of 6-7 percent. China has reduced its projection for 2009 based on recognition that its exports will suffer in light of the recession in many OECD countries. For this reason, China announced a stimulus package for 2009-10 of 7 percent of GDP, which is huge, in order to substitute domestic demand for foreign demand. China will therefore be building more houses, more roads and be adding to its infrastructure, particularly in rural areas, as a way to maintain growth rates which are sufficient to keep the Chinese population employed. This fiscal stimulus will help China, but also will help the rest of the world.

Question answered in English, Spanish translation available soon. A lot will depend on the impact of the recession in the OECD countries on large emerging market economies. In the case of South America, for example, if Brazil manages to keep its growth rate reasonably high, smaller countries in the region who trade with Brazil may not suffer as much as those that are dependent on their exports on the growth rate of the US or Europe. That said, however, we can expect the global turndown to affect everyone to a larger or smaller extent since 2009 will be a year of very weak global growth.

The challenge to poorer or smaller countries is to make sure their fiscal expenditures adequately protect the most vulnerable populations and also that their financial sectors are sufficiently strong so that they are not caught in the big current currently affecting developed financial markets. This requires strong regulatory oversight of the banking system.

For oil exporting countries the great volatility in oil prices is currently a problem. In addition, one should recognize the impact of OPEC price policies for global economic prospects as well. Most responsible oil exporters will base their economic plans and expenditures on the long-run price of oil, not on the highly volatile spot market, and as most of them also have very high levels of international reserves, they will be able to cushion short term revenue reduction.

For non-oil countries in the region, their challenges are similar to other developing countries, namely they have to adjust to slower world growth and smaller inflows of capital. In the Middle East, this is complicated by potential reduction in the flow of remittances and potentially lower employment prospects in the rest of the world. We can expect 2009 to be a difficult year for many of these reasons.

Question answered in English, French translation available soon.

There is no doubt that this recent crisis shows some of the excesses of unbridled capitalism as described by Professor Stiglitz in many of his books. The answer, however, in my view is not to dismantle capitalism, which has led to the most rapid economic advancements in economic history, but rather, a reform of the regulatory systems, particularly in financial markets, that allow excessive risk taking to occur.

I do not know enough about Islamic banks to comment on their portfolio strategy or risk taking; however, I do know that significant reforms in Western financial markets are required and as the G20 meeting in Washington last week indicated, this seems to be a commonly held view of many nations, including Saudi Arabia, which is a member of G20.

Question answered in English, French translation available soon.

Clearly the crisis has revealed serious cracks in the financial sector and weaknesses in regulation and supervision. Whereas the Bretton Woods institutions are often looked to for advice and financing in the developing world, at times the developed world has been less receptive to warning signs. To be fair to the IMF, they pointed out the structural imbalances in many of the world’s major economies in recent years.

Nevertheless, as the G20 leaders indicated in their communiqué last week, serious reforms to the world’s financial regulatory regime are long overdue and some of these may involve mandates of institutions created after World War II. One of the reforms already begun at the BWI is to increase the voice and participation of emerging market economies in decision-making as a reflection of their increasing economic importance in the world.

One should not lose sight of basic human needs and the international community has reinforced the importance of economic and social indicators such as those proposed by Paul Streeten and the current terminology for BHNs are the Millennium Development Goals to which the entire international community has committed itself. To achieve the MDGs, however, it turns out that high and sustained levels of growth are indispensible. This was the finding of the recent independent Growth Commission report—led by Professor Michael Spence, whose website is www.growthcommission.org.

Certain interventions are the responsibility of government and are independent of individual earnings. These include the need and right to basic education. Other economic advancements, however, to generate higher levels of income do require job creation. The evidence is that exports and economic growth are the best drivers to increase incomes. A quick look at the history of Vietnam over the last 15 years illustrates this fact dramatically, as income have increased five fold and poverty rates have fallen from 60% to 20%. This is not trickle down, this is economic development and Vietnam has the indicators to back it up.

Question answered in English, French translation available soon. Financial crises tend to revolve around the lack of confidence in financial markets which can include banks and other financial entities. What makes the current financial crisis different from most is that it is affecting financial markets all over the world at the same time. The net result is that stock markets have lost value, holders of particular assets like mortgage-backed securities have suffered big losses, and the insurers of many of these new financial instruments have also gone under in a number of countries. This kind of global meltdown has not really been seen in the last 80 years.

The World Bank is constrained by its charter from interfering in political matters. It therefore cannot do much, if anything, about the quality of political leadership in a country. Political issues are more within the mandate of the United Nations and in countries where there is a special UN mission the Special Representative of the Secretary General is the point person for dialogue between government and international community on political matters like elections. Within international fora there is some discussion about how the international community should intervene in countries where the government is not benevolent towards its citizens, recognizing that any intervention such as delivering some limited services outside the government has implications for national sovereignty. However, the World Bank is not in the lead in such discussions.

The World Bank is adapting its strategy for engagement in situations of fragility and conflict based on research done by academics and think tanks, its own research and the lessons of experience gained from the operations on the ground of the Bank and others. We are reaching out to those doing research in a number of countries, as well as international experts and practitioners, and our development partners. We are currently having a number of small seminars for our staff to interact with international experts. In addition, we are distilling some of the lessons of our operational experience through review sof successful programs and from staff returning from country assignments. Research, knowledge management and staff learning is one of the key planks in implementing World Bank’s strategic theme of fragility and conflict.

Multilateral institutions like the World Bank are essentially international cooperatives owned by nearly all the countries in the world. In other words, the Bank is the development face of the international community. Although our shareholding is skewed by the size of their economies towards the industrialized countries, decisions at our Board are almost always taken by consensus. Therefore, the interests of individual shareholders are muted and the Bank offers advice and assistance based on analysis and its empirical research. It is fundamentally a technocratic institution that tries to understand domestic politics within a country without seeking to meddle in them.

In conflict affected countries the Bank is very concerned to be “conflict sensitive”, i.e. not to do anything that makes conflict worse – the “do no harm” principle. This is done by social analysis of the situation on the ground and the social implications of interventions such as investments we finance, and by ensuring that some of the underlying grievances that fuel conflict, such as poverty are addressed. We also support activities such as community driven development where there is evidence that mobilizing communities to solve their problems can reduce tensions within a community.

In Afghanistan the World Bank has provided more than $1 billion to support government and community owned programs that enable the state to provide services to at least some extent in all 34 provinces of the country. Much of our assistance has flowed to communities in block grants, especially through the National Solidarity Program, but we are also financing the government to provide basic health services to rural areas through NGOs working under contracts with the Ministry of Public Health. We see our role in Afghanistan as helping Afghans to rebuild their state and all World Bank finance and finance from the trust funds we administer, goes through the government budget to support capacity building and ownership. Facilitating development in a country affected by conflict where the international community is a potential target is a risky challenge. However, we have found that if Afghans are in charge and delivering services accountable to the people, these risks are reduced. Schools built with the local community are protected by the community.

You are correct that fragile countries often suffer from the worst corruption. The World Bank tries to address this in two ways: helping countries to put in place systems that make corruption more difficult; and protect the money it provides from being diverted to improper uses.

Much of our work in fragile states has been to help them put in place public financial management systems to strengthen procurement and accountability. Another critical area is to stimulate the demand from citizens for good governance by strengthening their involvement in service delivery such as through school parents committees or in community development councils. So far as funds managed by the Bank are concerned, we have strong rules on procurement, financial management, and audits. In some countries we have employed accounting firms to provide an extra layer of accountability, particularly when we are finance salaries and the recurrent costs of government. However, development is not culturally determined and countries that have successfully developed have usually changed traditional practices such as patron-client relations in, say, civil service employment.

The World Bank has financed the Reintegration part of Disarmament, Demobilization and Reintegration (DDR) programs. We are currently carrying out a review of such programs and will most likely publish the results on our webpage in a few months.

The World Bank is continually adapting its policies and practices based on research and lessons of experience. One clear lesson is that policy conditionality forced on unwilling countries does not work. Country ownership is critical to achieving development results. This doesn’t mean that we will finance things that experience elsewhere has shown clearly will not work. In fragile and conflict affected situations the Bank has often financed things that we would not normally finance elsewhere. An example is industrial parks in countries where land with clear ownership is difficult to find, security is bad and where infrastructure is very weak. In fragile situations the Bank puts its money through government systems to maximize the opportunities for administrations to learn by doing and to strengthen the accountability of government for delivering services to citizens.

Hi Michele. Nice to hear from you. The Bank has an active program in Southern Sudan and an office in Juba. This covers a wide range of services ranging from providing advice, e.g. on how to implement the government’s decentralization program, to financing infrastructure such as the Juba water treatment plant. Because Sudan overall is in arrears in its debt service on old Bank loans, resources flowing to Sudan that are administered by the Bank are provided around a partnership with donors and government through a multi-donor trust fund (MDTF). MDTFs are a common instrument in post-conflict countries that enable donor resources to be pooled so as to finance government priorities. They lower transaction costs to governments that do not have much capacity to deal with multiple donors and their requirements. MDTFs are very much in the spirit of the Paris Declaration on Aid Effectiveness and the recent Accra Agenda for Action to improve aid effectiveness.

Best ideas in graveyards! What a depressing thought, even if true. The private sector has a clear role to play in situations of fragility, but we need to recognize the difficulties that investors face if the business environment is poor. There has been a lot of private investment in mobile phones in even conflict affected countries. A good regulatory environment, which the World Bank Group often supports through its advisory services, has been shown to attract more investment and lead to lower phone charges through competition. At the other end of the spectrum, microfinance has been useful in supporting small enterprises that generate employment and reduce poverty. The challenges are more for mid sized firms and those wishing to invest in infrastructure where the rule of law and a transparent, predictable business environment are important. This is not always found in fragile situations and is a governance problem. Our private sector arm, IFC, does provide technical assistance and training to strengthen the skills of the local private sector.

While there is not ISO standard on governance, the World Bank does publish governance indicators for all countries of the world. These are available on our website www.worldbank.org and search for "WBI governance indicators". The Bank also has an "IDA Resource Allocation Index" for the countries receiving assistance from our soft loan/grant facility that is also available on our website.

Farmers participating in NAADS are small farmers. They are members of farmer groups, who then apply for support through the subcounty farmers fora. The majority of NAADS participating farmers are female. Women in NAADS subcounties demonstrate higher incomes and productivity than those in non-NAADS subcounties.

The objective of NAADS is to transform farmers from subsistence to commercial. This is done in several ways. First, by encouraging farmers to adopt products which the market demands through the provision of advisory services. Second, to link farmers to market by organizing both the supply and demand side. For example NAADs helped farmers organize into groups to market rice, vanilla, sorghum, groundnuts, temperate fruits, etc. Farmers decide which three products they wish to adopt, then advisors are hired through a tendering process to provide this service. The groups also receive inputs to get started. In my opinion, African farmers need information as well as access to inputs and markets to succeed.

NAADS like any other development activity is subject to political interference. In my view, the best way to ensure that the project benefits the intended farmers is to put the farmers in charge of deciding what will be provided and who will participate. Also, NAADS ensures that farmers decide whether a service provider’s contract will be renewed or not. If services are not given, the service provider is fired.

This is an interesting question which has come up in Uganda, as many areas have poor soil. Part of the NAADS advisory package encourages adoption of new technologies, which includes ensuring sustainability through soil and water management. For example upland rice production has been promoted, and Uganda’s rice production has increased by four times over the last two years. Soil management has been part of this success story. A farming system approach as well as a commodity specific/market oriented approach has been adopted.

The Government of Uganda and six development partners including the World Bank support NAADS. Support to date has totaled US$ 100 million over eight years, with US$ 50 million from the World Bank. The project started slower than expected, was extended by one year, with this phase of support ending June 2009.

Over the life of the project, NAADS has supported many technologies which have boosted farm incomes for the participants. Notably, vanilla, upland rice, mangos, oranges, temperate fruits such as apples and pears in Ugandan highlands have been supported, as well as more traditional crops such as groundnuts, sorghum, bananas. Livestock production has also been boosted through introduction of improved breeds of goats and chickens. Advisory services as well as startup inputs are provided. The market situation as well as agronomic and other considerations weigh into the choice of activity for each subcounty, who each pick three enterprises per year as their focus.

For World Bank activities in Botswana, you can check this website. http://web.worldbank.org/external/projects/main?query=botswana&menuPK=51526592&pagePK=218616&piPK=217470&status=ALL&theSitePK=40941

NAADS aims to increase the agricultural production and incomes of participating farmers through providing knowledge and inputs. The objective is to transform subsistence farmers to commercial farmers, so much attention is paid to creating market linkages by working on both the production side and the marketing side. Existing and new enterprises have been supported. Vanilla is a good example of a new enterprise which was introduced in Uganda when Madagascar suffered bad weather and could not meet world market demand. As a result Uganda is now the fourth largest producer of Vanilla. The project is not a food security project per se, the focus is to encourage farmers to both produce enough food for their own consumption, produce cash crops for income, and to produce enough surplus to provide for their families.

Yes, the World Bank along with six other donors support NAADS, which is the Government’s sole programme supporting agricultural advisory services in Uganda.

This is a good question. NAADS is very different than traditional agricultural productivity projects in Africa. First, it is supported by development partners through a basket funding mechanism, which means funds are co-mingled, government only needs to produce one progress report, one audited set of accounts, etc. Secondly, its approach is to provide publicly funded advisory services through private service provision. That is farmer fora at subcounty level contract service providers according to their felt needs. Thirdly, the project supports the value chain from farmer to buyer/manufacturer by linking farmers to businesses who are demanding products which they can produce.

This is another good question. The role of government funded support in NAADS is very specific, the program supports market linkages in several ways. First, it guides subcounties as they pick their three enterprises by providing market and agronomic information. Secondly, it seeks out buyers/enterprises in the area who can establish a marketing relationship with the farmers. It has not always been easy to draw the line where the government should stop and business should take over. We have designed the guidelines for NAADS to focus on production and primary processing, so farmers can get their production to market in an economic way. From there on commercial business is encouraged to contract farmers without the participation of government/the project. In some cases, we have encouraged commercial enterprises to participate in the provision of advisory services and inputs as well, with some success.

I would like you to take a look at the project website to see what is happening with Ugandan Agriculture. Here is the link.. http://www.naads.or.ug/

NAADS farm groups, along with advisory services, are provided startup inputs such as seed and fertilizer, or chickens or goats, for livestock activities. They are encouraged and supported to create revolving funds to save together, so they can continue into subsequent seasons, and eventually become good customers of microfinance institutions and banks.
Market linkages are a key part of NAADS advisory support, as described in earlier answers.
NAADS does not provide support beyond primary value addition, to allow farmers to market their goods. Larger investments are supported through microfinance.
NAADS is a 25 year programme of the Government of Uganda. Farmers as well as local and national government contribute. The vision is to lift farmers out of poverty, so they can sustain their production. However, the role of government and development partners is to support farmers through introduction of improved technologies and market access to keep with the changing world and global happenings. For example, the food price crisis presents an opportunity for African farmers to produce more food to meet these new demands. In addition, with changes in the world’s climate, places like Uganda, which sufficient rainfall and water sources can produce for areas which are not as well endowed.

Hope, this is a good question. Land is scarce in Uganda, and needs to be utilized to the maximum. Opening land which is not under cultivation is part of this, as is improving livestock production and keeping land fertile and productive. Mechanization is part of the answer, but there have been many failures due to lack of farmer ownership and political interference. NAADS is working this year with a “walking tractor”, an improved plough from Asia which can help small farmers open more land for production.

Service provision under NAADS is publicly funded, but privately provided. Farmers through their farmer fora determine the demand for types of service, guided by agronomic and market information. The approach was adapted from Latin America, I see no reason why it could not be adapted for Asia.
Farmers, local government, national government and development partners all contribute financially to the program. The vision is that over the 25 year life, farmers and local government share will increase. Also, farmers who become successful and commercial will graduate from the program. The program has just reached national coverage this year, and a second phase of support to this important national program is envisaged to start in July 2009.

Dear Otabor

In the longer term, improvements in the quality and quantity of food are the key. There is strong evidence that the returns from investments in research and development in developing country agriculture are extremely high. R&D can help improve farmers’ incomes, while helping hold down the price of staple foods to consumers. Policy controls, such as price controls, by contrast, have many problems such as reducing returns to farmers and creating shortages.

Dear Michel

The paper in question is a preliminary draft that has been circulated for comment prior to finalization. The study tries to assess the importance of the relative contributing factors to the increase in prices. It finds that demand from developing countries has been growing more or less in line with supply, and that weather-related shocks have been relatively minor. Dollar weakness has been a much more important factor.

A fundamental change in the market has been the growth in use of food products for biofuels. The initial increase in prices from this source has been compounded by consequences of this shock, such as low grain stocks and export bans.

Dear Pheak

I concur with your assessment. In the short run, we really need to deal with the problems of the most critically-affected people through measures such as food aid. Social protection policies can perform a vitally important role if they are able to build on existing measures, or to be expanded quickly. In the longer term, improvements in agricultural technology are very important since they can benefit farmers, while helping reduce the cost of food to consumers. Longer term, we need a well-functioning international trading system that avoids a recurrence of such crises.

Dear Antonio

A continuing Green Revolution that raises the productivity of poor farmers in developing countries is the key in the longer term. Liberalizing world trade will, indeed, raise world prices. But the estimates in my recent book with Kym Anderson suggest that full global trade liberalization would raise world prices of staple foods by around 5 percent. Consumer prices in most developing countries would actually fall in this situation because of the abolition of tariffs. Liberalization of the type undertaken under WTO agreements on agriculture tends to be poverty reducing because it covers a much wider range of commodities than just staple foods, and creates opportunities for developing countries in value-added commodities.

Dear Geoff

The study in question is an unpublished draft that was circulated for review and comment with the stipulation that it should not be cited or released. Unfortunately, someone, somewhere did not respect this request.

On the substance, there is, and needs to be, a lively debate about the relative importance of different contributing factors to the big in crease in prices. The version of the study that I’ve seen takes a very careful approach to decomposing the causes of the increase in prices.

I certainly hope that the completed study will be publicly available very soon to help promote the much-needed debate on this topic.

Dear Prime

Major importers of rice, such as the Philippines, tend to have unfavorable geography for rice production. Improvements in production technology can play a big role in reducing the problem, and generally appear to have very high returns that can raise economic growth. By contrast, protection policies lower economic growth.

Dear Leon

The food crisis is particularly serious for many African people. I completely agree that improving the performance of African agriculture is extremely important. But protection of uncompetitive sectors is the answer, because it inevitably raises the cost of food to poor people, who spend up to 75 percent of their incomes on staple foods. Improving the productivity and competitiveness of African agriculture through development and extension of improve techniques is critical. The World Bank has recently announced a near doubling in its support for African agriculture. See http://www.worldbank.org/foodprices/

Dear Edgar

I'd suggest looking at the paper by Ataman Aksoy and Francis Ng in the Bank's Policy Research Working Paper series. To download the paper, see http://go.worldbank.org/2Q90MSGTS0.

Dear Oumara

The Bank has many instruments to help farmers to expand their production of food. One of the key approaches is through its support for research and development under the Consultative Group for International Agricultural Research, online at http://www.cgiar.org. The Bank's country teams are also very actively engaged in supporting agricultural development both directly and through investments in supporting infrastructure. Through our economic research, we aim to encourage and promote adoption of good economic policies for agricultural development. In a major forthcoming study with Kym Anderson, we highlight, for instance, the high costs of historical practices of agricultural taxation in many countries.

China has supported fast growth by setting in place policies to mobilize labor and capital, have an attractive investment and busincess environment, open up and reform the economy to foster productivity increases, and ensure macroeconomic stability. Having started its reform process at low levels of productivity in the end-1970s, these pro-growth policies have contributed importantly to China's rapid sustained growth.

On top of that, China has tended to stimulate an industry lead, capital intensive pattern of growth, by several policies that boost saving and investment and make it very attractive to produce industrial products. In some ways it has become too attractive to produce industrial products in China. Too attractive because energy, land, and other resources have been priced cheaply, environmental degradation caused by factories has not been priced in correctly, and local government officials have been probably overly keen to attract industrial investment as opposed to service sector activity catering to domestic demand.

China's government is currently working on rebalancing this pattern of growth, making growth more led by services and domestic demand, particularly consumption. The challenge is to rebalance the pattern of growth without hurting growth unduly. We think this is possible by getting more growth out of efficiency improvements, in part by better allocation of capital and labor. That is, by pursuing reform in the areas of fiscal policy, financial sector, the labor market, and the policies to rural-urban migration, China should be able to reap efficiency gains that make it possible to continue to grow rapidly along a pattern that is less industry and investment heavy.

I visited earthquake-hit areas of Sichuan last week with some colleagues (see our blog posting at http://eapblog.worldbank.org/content/sichuan-ordinary-life-in-an-extraordinary-situation for more on this). I was really impressed with how well the Chinese government has coped so far. Given that a large disaster hit Myanmar at the same time it is hard not to compare the two efforts. While China has good capacity itself, it still welcomed international support of various kinds: expert advice, rescue teams, movable hospitals. China’s response has been much more open than Myanmar’s. Also, Chinese journalists started traveling to the area immediately, and while the government’s attitude was ambiguous for a day or two, it soon welcomed this. So, I think one big lesson is the importance of getting the media to cover these events so that the whole population is informed and involved. The outpouring of individual contributions and volunteerism in China has been remarkable. That said, the reconstruction is a huge effort that will take years. I hope that China draws on some of the good experiences from other recent disasters such as earthquakes in Pakistan and Turkey.

I think China’s environmental problems are growing pains that are gradually being addressed. China in fact has learned from the bad experience of the west and is starting to clean up at a much earlier stage of development. Given China’s economic success, people often forget that its per capita income is similar to the U.S.’s in about 1920. All of the industrial countries created terrible air and water pollution as they industrialized. That is not to say that China should do the same. It is less costly and better for people’s health to industrialize and keep pollution in check at the same time. China’s policy has been along these lines for about ten years now. The result is some progress: water pollution is lower in the south than 10 years ago, and air pollution has improved in most cities. China is one of the few countries in the world that has increased forest cover – by about 70% in the past 20 years. That said, air and water pollution levels are still too high. A recent study by SEPA and the World Bank estimated the health costs of air pollution to be 3.8% of GDP. Many of the measures to control air pollution are not that expensive: converting all taxis and buses to natural gas, investing in public transportation while taxing gasoline and limiting car use. On balance, China is making progress, but it is in the country’s own interest to clean up faster. Jim Fallows has an interesting article along these lines in the recent Atlantic Monthly; see http://www.theatlantic.com/doc/200806/pollution-in-china.

This is a good question, but am afraid it out of my area of expertise. For many countries, metals and energy need to be imported. Many are trying to secure steady supplies of metals and energy, and sometimes this involves direct investment and direct involvement at the source. On other occasions, the approach is more hand-offish. As an outside non-expert observer, in terms of the economic and physical processes, I don’t see large differences between the approach of China and India and other emerging markets on the one hand and that of Western countries on the other hand. I have no expertise in the areas of politics and military issues, sorry.

In recent years China has become a more vocal and active shareholder in the World Bank, something that is welcomed by just about everyone. For example, China was one of the leading countries several years ago arguing that the Bank had made a mistake by moving out of infrastructure financing and focusing excessively on the social sectors. Most developing countries have welcomed the Bank’s shift back toward more balance between social sectors and infrastructure, and credit China with playing an important role. China has also pushed the Bank to remain active and relevant in middle-income countries. This year for the first time China became a contributor to the concessional fund, IDA, that the Bank uses for projects in low-income countries. This brings China into an important forum – the regular meetings of IDA deputies – where key issues of foreign aid are debated and policy for the Bank determined.

Yes, basically we divide the manufacturing wage bill by industrial value added in constant prices. We know of complications with the data, and don't want to make too much out of the unit labor cost estimates. But, we feel how unit labor cost increases develop according to this proxy may still tell us something.

China is the next model in the sense that its success and size has attracted a lot of interest and attention. Recently we helped the Chinese government organize a seminar and study tour of African officials interested in learning from China’s success (see my blog posting on this). The Chinese participants were very careful to say that they do not see China as a model in the sense that other countries should simply copy what they have done. They emphasized that in their view what was distinctive about China was less what it had done, and more how it had reformed. Chinese government is very pragmatic, trying out approaches and then scaling up ones that work. It also encourages competition among provinces and cities to see who can come up with the most successful policies. This practical approach to reform is a good lesson for other countries. In terms of what China has done, it is not that different from what other successful East Asian countries have done before. The Chinese experts emphasized the importance of liberalizing trade and direct foreign investment, creating a good investment climate for the private sector, investing in both cities and the rural areas, and developing infrastructure.

Let me take the first two questions and David can respond to the third. China’s textile and clothing sector still seems to have good prospects, although the low value added part of the sector may come under pressure as China develops further and wage costs rise. The rapidly growing domestic market has become increasingly important and lucrative for the sector. Exports have decelerated but they are still growing. The cost pressures affecting the industry (raw materials, an appreciation against the dollar, rising wages) have received a lot of attention. However, the rate of return of the textile industry has continued to improve last year. I am no expert on this sector, but I would think that, as in other parts of China’s economy, upgrading the product package and production process will become increasingly important.

David Dollar

Regarding your third question, China recognizes that it is likely to be a big loser from global climate change (more rapid desertification in the north, drop in agricultural productivity, more severe rains and flooding in the south). In response, it has set an ambitious target of improving energy efficiency by 20% during its current five-year plan. That would make a big contribution to controlling greenhouse gases. In the first two years of the plan it made modest progress, mostly through administrative measures such as closing inefficient power plants and increasing fuel-efficiency standards for vehicles. More recently it has significantly increased energy prices, which is the surest way to get households and firms to economize. China also has an ambitious target to increase use of renewable energy. Wind power is spreading rapidly. China has drawn on the global carbon market to support some of these developments. Last year China accounted for 70% of all the carbon reduction sales in the world. The World Bank is the intermediary for some of these deals. For example, we financed the first big wind power station in China, which was only economic because we sold the carbon reduction to European and Japanese firms that can use the carbon reduction credits to meet their emission reduction commitments under the Kyoto protocol.

We noticed these stories too. The economics of trade are interesting. For good that are relatively low end in terms of $ per kilo or $ per square foot, transportation costs matter a lot. So, a venture to build boilers in China instead of the US--which looked attractive at shipping rates of 2 years agaoo--could become uneconomical at shipping rates three times as high (boilers was the example I remember reading in the newspaper). We have not done detailed analysis, but it is our understanding that the types of goods for which shipping rates can make or break an arrangement to manufacture in China make up a modest share of China's exports. Thus, while moving back production to the US does seem to happen in some cases, we have the impression that it is not a systemic trend.

Let me respond to this and to your other question "Can the rural village changers be valued by world bank? Since some developing countries could.".

There are a number of ways that the World Bank is helping with rural community changers. First, we have promoted the development of water users associations among farmers. This has been a very successful innovation that helped farmers self-organize and manage one of the scarcest resources in China – water. Second, in some cases these WUAs have broadened out to become full-fledged farmer collectives, which did not previously exist here as independent bodies. This is important to give the farmers market clout and to promote innovation. Third, in some of our rural projects in poor parts of the country we have successfully introduced participatory approaches in which the village votes on which small-scale investments to pursue. Fourth, our China Development Marketplace raises money from the private sector and makes small grants to grassroots NGOs, many of them in rural areas working on environmental and social issues.

We feel that relying on increases in reserve requirement ratios for the sterilization of foreign inflows is not consistent with the government’s objective of a more commercially oriented banking system. Raising reserve requirement ratios (RRRs) is asking commercial banks to set aside part of their assets at low interest rates at the central bank. The low interest rates lower profitability, compared to a scenario of not raising RRRs (although not necessarily compared to a scenario without the inflows). Moreover, the frequent and unpredictable changes in RRRs complicate business for banks.

What alternatives are there? You note that raising interest rates would increase speculative inflows and domestic saving. I think the first best is tighter capital controls, especially at the short end, and have more—not all--of the inflows be absorbed by appreciation. Knowing that there will still be a need for sterilizing, open market operations—just selling government or central bank paper in line with market conditions—are more market friendly and neutral.

What is the impact of the present monetary policy on access to financing by SMEs? I don’t know good data on SME lending available. I would have expected that, with credit controls actively used, banks would have an incentive to find higher interest rate clients, including SMEs. However, I understand that has not happened: the average interest rate of loans has not increased much recently.

On the (somewhat) recent bankruptcy law, our November 2006 quarterly had a discussion of it; see http://go.worldbank.org/NZLENK2LK0.

It is our impression that so far during the 11th 5YP (2006-2010), significant progress has been made in both improving the rural health service delivery system and the urban community health care system. In rural areas, the goal is to strengthen the 3 tier health service delivery system, with facilities at county level, township health centers, and village clinics. The target in the 5YP of the Ministry of Health is one public THC in each township and at least one village clinic in each administrative village. It is too early to say whether this target will be met, but the amount of financial resources and effort put in it so far has been encouraging. In urban areas, the goal is to establish a well-developed urban community health service system for cities at the prefecture level and above, and for the cities at county level by 2010. Based on progress so far, it is expected that these goals can be met. However, it is still too early too say what the impact of the community health centers on accessibility and affordability of the health services.

Both in urban and rural areas, improving accessibility and affordability are likely to be the main challenges in the coming years.

Progress in the past two years has been pretty good. China had a target to role out the new National Cooperative Medical System to 80% of counties by 2010; in fact, they reached 86% of counties last year. This has been possible because of large increases in the central government budget for rural health and education. They have also increased the per capita funding of the NCMS. That said, the challenges ahead are still daunting. What each rural family can get from the NCMS is not sufficient to address catastrophic illness, which is still a leading cause of falling into poverty. (Expansion of the rural minimum income program – Dibao – helps some here.) The World Bank just approved an innovative rural health project that provides grants to poor counties in different parts of China to experiment with different approaches to rural health reform – with the idea of trying to find on the ground some cost-effective ways to improve actual services (link to press release).

China has built up some insurance during its long boom because its fiscal policies have been pretty conservative and on the external side it has built up large reserves. This gives it the space to allow the exchange rate to appreciate, which takes the wind out of inflation's sails. China still has moderate inflation of around 8% but it has been able to avoid the much higher inflation in Vietnam or other Asian countries. I think one lesson is to save during good times, so that you have more flexibility when times turn bad. On the growth front, China has been able to maintain growth up near 10% this year. But it will face a bigger challenge in future years -- the decline in its trade surplus will be a subtraction from growth, and there is a risk that as that occurs Chinese households and firms will become tentative. So, things are good so far, but I think the world economic situation will be challenging through 2009. So Chinese policymakers have to stay on their toes in case there is any slowdown. There is still some risk of hard landing.

Higher energy prices are driving up costs and prices around the world, including as you notice of shipping Chinese goods. Note Richard Price's question and my answer. I am note sure whether, in the face of cost pressures felt all around the world--as opposed to cost pressures unique to your country--it is obvious to depreciate the currency. We think that, considering China's macroeconomic situation, which include inflation, it makes more sense to appreciate the currency so as to dampen price pressures. Also, China is getting a lot of growth from the domestic economy, and China's overall growth can withstand a slowdown of exports. Thus, I do not think that China's policymakers would choose to depreciate the currency.

The Northern half of Chin has been becoming more dry, and probably global warming is accelerating this trend. The resulting desertification and decline of agricultural land is a big problem. China has several responses. First, some people have been relocating out of rural areas to cities. So far China's overall agricultural production is fine, so this seems a good economic choice. Second, the World Bank has sponsored a very successful set of projects in the Loess Plateau that have helped communities shift to water-saving crops and more ecological practices (see http://go.worldbank.org/1YDIIWHNA00). The result has been remarkable regreening in some areas. So, there are parts of the north that can stay green with the right policies and practices. China can produce enough food with a much smaller rural population, so the migration to cities makes sense. Also, because China is land and water scarce it is more efficient at certain types of crops, and not so efficient at wheat, soy beans or corn. A key question for Chinese policymakers is whether they can accept that the country become a large net importer of grain while farmers concentrate more on high value crops such as nuts, fruit, vegetables, and animal husbandy. Some Chinese worry that this will lead to food insecurity. My view is that if the country still has large overall agricultural production, then importing grain is not a problem. If there were some problem in the world grain market, then China could easily shift land back as necessary.

Yes, the data we use is all published by China's authorities. Of course, there are things that are not published but that we construct using existing data: for instance, trade in constant prices we calculate using values and prices; unit labor costs we calculate using information on wages and production.

The World Bank and IFC are beginning to work with Chinese companies and banks on environmental and social safeguards in China's overseas investment, but this partnership is at an early stage and we do not have anything written up on it yet. We signed a memo of understanding with China's EXIM bank to cooperate in developing countries in different ways. As part of this my staff in Beijing have provided training courses to EXIM staff on the Bank's approach to environmental and social safeguards. Several EXIM staff are currently seconded to the Bank. And we have had a couple of joint missions to Africa to try to identify projects that China and World Bank could support together. But as I said, this is all at an early stage. For this to work really depends on the recipient developing country valuing this kind of collaboration between China and the Bank. On the IFC side, IFC has lots of private clients in China in industries such as banking and cement. IFC is trying to help some of these private Chinese companies go global, to Africa and elsewhere. Any such collaboration between IFC and a Chinese company in a third country would have to follow the Bank Group's safeguards for environmental and social protection. Within a few months I think we will have some papers on this topic that will be available.

Good question. There have been reports about labor cost pressures and pressures to move manufacturing out of China's coastal areas. However, these are largely anecdotal. I have heard people saying they see a lot of business men flying from Shanghai and Hong Kong to check out Vietnam, but very few actually decide to pack up in China and move to Vietnam. It will happen eventually for products at the lower levels of sophistication. However, China's competitiveness position is still very strong. We have a box on it in the June Quarterly (see http://go.worldbank.org/YKOY275UH0). The other part of the question is on the still large number of people who have not yet been "absorbed" by the modern economy. As you rightly say, China is still at a low level of development. In the September 2007 Quarterly we have a Special Focus where we discuss why China's surplus labor in rural areas is not drying up yet. And, that is where the bulk of poverty is in China. We think that China still needs a lot of urban growth and migration to cities to absorb these people. China's government thinks likewise and is actually trying to shift the pattern of growth to one where more growth comes from (more labor intensive) services and domestic demand and less from industry.

China is quite prone to natural disasters. In recent years it has had some serious floods (about one a decade, really serious along the Yangtze), the freak snowstorm earlier this year, desertification and sandstorms in the north, typhoons along the coast, and of course earthquakes -- most recently the devastating one on May 12. China has been able to survive all these disasters and still grow very rapidly. The country is fortunate to be large and diverse, so the disasters usually just affect one part of the country. Other parts of the economy continue to function, and can help the damaged area. But looking ahead, it is very much in China's interest to develop better insurance markets and more systematic response to disasters. For example, almost none of the more than 5 million houses destroyed in Sichuan by the earthquake had insurance. So, the government has to step in and help each household. It would be more efficient to have private insurance markets supplemented by government protection. Turkey responded to its big earthquake by overhauling the whole system of disaster management and relief financing. This is a good example to learn from.

This is largely because China's economy was growing faster in 2007 and early 2008 than we all thought. China's bureau of statistics revised GDP data in April, revising up overall growth and services growth for 2007. We have not changed our views about the underlying growth prospects, but did reflect this upward revision. Table 1 in our quarterly shows our projection according to the unrevised and the revised data.

If you asked me a month ago I would have said that the Olympics are likely to have a small effect on the Chinese economy. They are a big event for Beijing, but in economic terms they are not a big event for the Chinese economy. They could have some modest positive effect by bringing in new tourists and sharing more information about China around the world - usually better information leads to more trade and investment. But these effects are likely to be small for China as a whole. However, the second part of your question raises issues that I have become more aware of in recent months. What I hear informally from foreign investors is that delays in getting visas and more importantly, bottlenecks at ports and in transport with additional security is slowing business down. Ironically, this is not a bad thing for China. The government would like to see some slowing in export growth and in industry so that some temporary bottlenecks might actually help China slow the economy a bit and keep inflation under control. Once the Olympics are over, the manufacturing firms that were having some problems are likely to work double-time to catch up with production, so the overall effect for the whole year is still probably modest.

I am afraid that we are not the best source of information on individual companies such as Sinopec. I do know that foreign investment in oil, minerals, and mining is quite limited, so developments in these companies are probably not driven by foreign investment. China has become by far the largest seller in the global carbon market, accounting for 70% of sales last year. I think good data on the carbon market are available. China has many good opportunities for emission reductions, and that's what they are selling in global carbon market. The World Bank is an intermediary in many of these transactions. Environmental lending is developing as a good business in China, and I don't see monetary policy hurting this. For example, quite a few banks ae developing energy efficiency lending as a specialized business. The banks have technical staff who help firms -- especially small and medium ones -- identify energy saving investments that pay for themselves. Then the banks can make money lending for these investments at commercial interest rates.

Exports from China to the US are hardly growing at the moment, in US$ terms. This means that in real terms they may be falling (yoy). That must be the explanation for what you observe. A pick up in US growth, and thus demand for Chinese products, should lead to a pick up in this freight market, I would think.

Please see my answer to Brian Gomez, and the box in our June 2008 quarterly. We think that China's competitiveness for manufacturing is still strong. Costs are rising in China. But, costs are rising everywhere, and it is not clear that costs are rising faster in China than in other countries. By the "outcome" indicators that we look at--export market share, profitability of core manufacturing--China's competitiveness still seems solid. China's manufacturing will feel the negative impact of a weaker global economy this year and next. At the same time, China's manufacturing will be supported by a relatively strong domestic economy. Forecasting is always difficult. But I would think that the strong fundamentals supporting China's manufacturing will continue to benefit it in the coming years.

1. Wages are rising rapidly in China. Average wages are not rising as fast as the official data suggest, but still seem to rise significantly. A wage - price spiral is not our central forecast, and so far it appears that wage growth has not picked up a lot in response to the higher food prices. But it cannot be ruled out. That is why we think the PBC is right to have a relatively tight monetary policy.

2. We discuss this in our June quarterly. The PBC keeps monetary policy relatively tight by sterilizing foreign inflows and using credit controls. Interest rates have also increased. However, they are still not very high compared to inflation. We think that it would be good over time to use interest rates more actively rather than credit controls. But, so far the bottom line monetary conditions do not seem overly loose, which is important. In addition, the authorities are letting the exchange rate appreciate, which helps dampening price pressures. Finally, they have introduced several types of administrative and trade related measures on food markets, to make imports cheaper; discourage exports--which also dampens domestic prices even though it is distortive; and contain food prices.

The first part of the 2000s has been a period of good global growth and until recently, low inflation. Energy and food prices were low. That has now all changed. China was smart to save during the boom time -- most importantly through the accumulation of reserves, but also through prudent fiscal policy. Many developing countries make the mistake of borrowing and spending on consumption during the boom times. Then, when growth slows down -- and in this case, with high energy and food prices -- many developing countries have the typical problems of high inflation, balance of payments deficits, and unsustainable debt. China is of course affected by the global slowdown and higher commodity prices. But China's strong savings position gives it several important options. First, China is introducing the higher energy prices gradually. This prevents any big shock to the economy. It requires some subsidy from the budget. But in China's case (1) it can easily affort the subsidy and (2) it is keeping the subsidy under control by gradually raising prices to the international level. Second, China's strong balance of payments position enables China to appreciate its exchange rate in this situation which keeps inflation at bay and eases the pain of higher prices for domestic consumers. Contrast this with developing countries that borrowed and dissaved during the boom. Now the slower growth means they have to cut back spending, while their weak balance of payments leads to devaluation, exacerabating high inflation.

We do not expect a hard landing. We forecast a moderation of growth, as the world economy slows down. I think that exports is slowing down much more because of a weaker world economy than because of price competitiveness reasons. The fact that processing trade is slowing down much more than "normal" exports--see our quarterly-- is consistent with this. But, yes, a slowdown in exports will also lead to weaker investment, particularly in the tradable sector. We have seen this moderation of investment already in the first 5 months. I would expect to see more of this. I personally think the impact of weaker exports will be larger on investment than on consumption. Thanks, will check out the article on the textile sector.

The relatively tight management of the exchange rate means that China has little monetary independence. This leads the authorities to use monetary instruments that are "non-standard" in that developed countries tend not to use them. It has also contributed to making manufacturing in China very attractive, both compared to manufacturing abroad and to doing service type activities. This has pluses and minuses. One issue is that China now runs a very large current account surplus. This is a reflection of an unbalanced pattern of growth. We think that a stronger exchange rate is one measure among a range of measures that is necessary to bring more balance in China's growth.

In general China is having positive spillover effects for other Asian developing countries. When the multifibre arrangement that governed global trade in textiles was phased out a few years ago, there was a fear that China would take over the whole market and countries like Cambodia would lose out. That has not happened. Wages are rising in China and are much higher than in Cambodia, Bangladesh, or Vietnam. So these other countries can compete with China in labor-intensive manufactures. In fact, Chinese producers in many cases are opening factories in Cambodia and elsewhere. China has also added a lot to global demand for commodities, so that commodity exporters including Cambodia have benefited by exporting to China. Cambodia has been growing well in recent years, and I have no doubt that the effect of China in the neighborhood is one reason for this.

As in many other countries, IPR had traditionally not been on the top of the policy agenda in China. Difficulty, and, some say, lack of incentive, to enforce IPR had a significant impact on the incentive to pursue innovation. As you note, more and more of China's companies are starting to invent and innovate. This creates a domestic constituency for IPR protection, in addition to the need to respond to international pressure. In other words, China has an increasingly strong incentive to enforce IPR.

China has legislation against child labor. Moreover, China has a 9 year compulsory education and China's families value education a lot. As a result, child labor is not as common in China as it is in many other developing countries. However, child labor does occur, and in the last 12 months the domestic media has uncovered some terrible cases of child labor, including in a mine. As you note, implementation is key. Implementation tends to be weaker in poorer areas far from China's major cities. On the working conditions of employees, these are generally getting better. That is both because of market forces and government action. More competition for the favorite types of employees in China's rapidly growing economy means employers have an incentive to offer better working conditions in order to reduce turnover. In addition, as part of China's 11th Five Year Plan, the government is focusing more on people and their living standards. For instance, a new labor contract law was introduced early this year. This improved employees' rights. China is still a poor country, overall, which is why large numbers of people still have jobs that would be very unattractive for anybody from developed countries. However, working conditions do seem to have improved in recent years.

China has become a large net importer of oil. And more oil will be needed to fill the tanks of all the new cars that will appear on China's roads, implying significant additional oil consumption. At the same time, China has a lot of coal, and most experts think that coal will remain very important, particularly to fuel power generation. Nuclear, hydro, and wind energy are very actively stimulate by the government. But, these will continue to play a small role overall in the coming decades. The high growth of activity and energy demand in China and other emerging markets will continue to put upward pressure on global energy markets. The impact on energy prices will depend on how much progress can be made world wide with energy efficiency improvements and on the supply response. Oil at $140 per barrel makes for expensive fuel. Thus, with energy and fuel prices in China eventually expected to be adjusted to world prices, high oil prices would make transportation and heating expensive for China's still relatively poor households. If oil prices stay high, public transport may get a boost. On companies, the impact should be broadly similar in China as in other countries. The OECD has done interesting research recently on the impact of high oil prices on the pace and structure of economic growth. I recommend that for more background (in their latest Economic Outlook).

Tough question, because there are many positives. If I had to pick one, I would pick the openness to foreign trade and investment. China has very open, competitive markets, which puts pressure on firms to improve productivity. It also uses direct foreign investment cleverly to bring in new technology, management skills, and access to global marketing networks. The most open markets in China such as electronics and much of machinery have seen extraordinary productivity growth and expansion. The more protected markets have generally lagged behind.

Dear Roy

From a global trade perspective, the United States clearly matters more to the world economy than China – but its pre-eminence in world markets is gradually declining.
The US share of world imports has shrunk from 19 percent in 2000 to below 15 percent in 2007, while the share of East Asia (excluding Japan) is now 19 percent — of which China is over 6 percent — and that of other developing countries is around 22 percent.

Note that there is a lot of trade of intermediate and semi-finished products within East Asia which is ultimately destined for US markets – so a slowdown in US imports is usually accompanied by a slow down in trade within East Asia. If we assume East Asia is one country (economists are used to assuming anything to make a point!), then the United States imports about imports about 29 percent of East Asia’s final exports – compared to about 26 percent for other developing countries and 45 percent for other industrial countries (that is Europe, Japan, Australia, Canada and so on).

In short, the US is an important player in the world market (it accounts for roughly a fifth of the world’s GDP), but its role has been shrinking slowly.

Best regards

Vikram

Dear Roy

I am not an expert on the international rice market, and a lot of analysis is underway to try to explain why the rice prices have suddenly exploded (and there is no better term to describe what has happened). For what its worth, my sense is that that part of the striy can be explained by two long term trends – rapidly growing global demand for rice driven in part by rapid growth in incomes in the developing world, especially China and India; and slowing growth in rice production as yield increases have slowed and land used for rice cultivation has been lost to urbanization and industrialization in key producing countries – again in countries like China and India, but also in Indonesia and Thailand among others.

But the above explanation suggests that the relative price of rice would increase relatively gradually – although, as we have seen, the price of rice suddenly began to climb rapidly around the middle of last year. My hunch is that the long-term trends have been overlaid by three relatively short-term factors that explain the sudden spike in recent months. First, rice stocks have gradually declined in the rice surplus countries and the markets did not react until they reached critically low levels; second, the crisis in the US financial markets have driven investors – always in search of high returns – away from the stock and bond markets and toward commodities (which also partly explains, incidentally, why there has been a spike recently in other food prices, as well as fuel, and metal prices). Finally, the worlds major exporters are relatively few – Thailand, Egypt, India, Vietnam, China, and so on – and many of these countries have either banned rice exports or placed tough export restrictions in a bid to keep domestic prices affordable for their own populations.

But as I said, these are just my own “theories” without any real evidence to back them up, so let’s wait and see what the real "gurus" have to say once they have analyzed the data.

Best regards

Vikram

Dear Mr. Windfield

East Asia's (and China's) export growth rate has been declining since 2004 even as its GDP growth rate has been rising. It follows that domestic demand has become a more important driver of growth over the last few years.

Looking to the future, the deceleration in global growth stemming from the slowdown in the United States will mean that export markets are unlikely to grow as rapidly in 2008 as they did in 2007 – which suggests that exports from East Asia (and China) will grow even more slowly. And while GDP growth is also expected to slow, it will not slow as rapidly as export growth – thanks to continued robust domestic demand.

Best regards

Vikram

Dear Sokheang

The US slowdown – which is likely to spread to other industrial and developing countries -- will obviously have a dampening effect on Cambodia’s export prospects, particularly in garments. But we don’t believe this will too pronounced because the US slowdown is not the only global factor that will affect Cambodia. Another factor is high global food prices which we hope will spur agricultural production in Cambodia (a primarily agricultural economy where agricultural growth in the past contributed about a quarter of the growth rate of GDP). In addition, while the slowdown in the world economy may dampen the growth of tourist arrivals in the country (many of whom come to see the world-famous Angkor Wat temple complex in Siem Reap), it is important to remember that Cambodia is a largely dollarized economy, and the declining value of the US dollar has made tourism to Cambodia very cheap for Asian and European tourists. So its quite possible that the price effect may trump the income effect, and Cambodia’s tourist industry may actually benefit overall.

Inflation has been rising in Cambodia just as it has in other East Asian economies (or for that matter, around the world). Cost-push pressure is being exerted by higher food, fuel, and metals prices, but this is being more than accommodated by rising money supply which is being driven by substantial capital inflows. Here the situation is rather the same as in Vietnam.

Best regards

Vikram

Dear Eddy

The technology you suggest, if it works, could be invaluable to governments who are keen to target subsidies to specific individuals or households. Such forms of “smart” conditional cash transfers could significantly reduce costs of administering such subsidy schemes. The challenge will remain, however, of how to identify the individuals and households who should receive such cards. In Indonesia, they have a terrific family planning survey which they used to identify poor households during the crisis so they could give each such household 20kgs of rice each month. But updating such survey information is costly -- and therein lies the rub. Once you have a technology that is able to do that frequently, accurately, and cost-effectively, then you could have a real winning combination.

Best regards

Vikram

Dear Imran

I am not sure what you mean by your first question, but its interesting to note that a strong and resilient Chinese economy (which is the third largest in the world in PPP terms) works strongly in favor of the United States – especially now that its economy is slowing so quickly – because China has become an important market for US exports. The decline in the US dollar should assist the United States in becoming more competitive in external markets and allow exports to become an engine of growth and reverse – or at least ameliorate -- its economic slowdown. And indeed there are indications that this is already happening – the US trade deficit (that is, imports less exports) is shrinking rapidly. But this process will be helped enormously if US export markets are strong and growing healthily. And that not only means China but other developing and developed economies as well.

A strong and resilient Chinese economy is even more helpful to Asia – especially East Asia. Trade within East Asia has been growing particularly rapidly over the last three decades, and China has been at the center of such growth in the last two of them. Apart from being a part of an East Asian production network, China is also an independent source of demand for raw materials as well as finished goods. Slower growth in China has important ramifications for export growth in the rest of East Asia.

Best regards

Vikram

Dear Luong (I hope I have your first name right!)

Allow me to rephrase your question if I may. I think you mean to ask whether it is possible for Vietnam to reduce the growth rate of credit from 50 percent a year (which was the case in 2007) to 30 per cent a year (the recently announced target for 2008) while still maintaining GDP growth at around 8 percent.

If that is your question, then it’s a terrific one!

I think there is no doubt that the Vietnamese authorities are quite right in being concerned about the inflation rate – which was above 16 percent as of February 2008. Rising food prices, and the desire to maintain a fixed exchange rate that, in turn, fueled rapid credit growth, were the most important underlying reasons. Lowering the pace of domestic credit expansion to around 30 percent in 2008 is, therefore, an important element in the country’s anti-inflationary policy – but it’s not the only one. The authorities are also looking to see if their fiscal stance can also be less expansionary and are re-examining their policies toward exchange rate flexibility (to allow the nominal exchange rate to appreciate somewhat as a way of reducing imported inflation).

Will the reduction in the credit expansion rate from 50 percent to 30 percent be so drastic as to affect the growth rate? We believe that a slowdown in the growth rate is probably inevitable, but it should not be too significant. Indeed, the Vietnamese have done this once before – in 2004, when the authorities reduced the growth rate of credit from 46 percent to 25 percent (although admittedly they did it over two years), and the impact on the growth rate was not an issue. But more important is the point that economic policymaking involves balancing many different objectives, and this requires that adjustments in key macroeconomic policy parameters are done gradually. Thus, the authorities need to gradually reduce domestic credit expansion over 2008 so as not to “shock” the economy and avoid any sharp contraction in economic activity. And if it turns out that the eventual outcome is a higher pace of credit expansion than the target 30 percent, then so be it – so long as they don’t deviate from their eventual objective of lowering the core inflation rate (that is, excluding food and fuel) to a level that is below the real growth rate.

Now, some people could argue that the target credit growth rate of 30 percent for 2008 is too “expansionary” and would continue to fuel inflation. While this is certainly possible – in which case monetary policy may need to be tightened further – its important to remember that Vietnam ‘s economy is still being monetized, so an expansion in broad money at a rate significantly higher than the growth of nominal GDP is possible while still being consistent with decelerating inflation.

Best regards

Vikram

Dear Nasrudin

The Indonesian economy has been recovering well since the 1997 crisis. Last year it reached its highest growth rate since the crisis, the government’s debt burden has declined considerably (as has the external debt burden of the country), and the banks and corporations are in much better financial shape today (thanks to more careful lending and borrowing decisions). All of this while the country has gone through two transformations -- the first is its transformation into a vibrant democracy and the second is its transformation into a highly decentralized economy. These are remarkable accomplishments.

But to be honest, there are other features that worry me – some of which are short term and others are long term.

Among the short term issues, I worry about the high and rising oil subsidy that is a huge burden on the budget (it costs over 100 trillion rupiah a year at the current high price of oil in world markets!). What is more, this subsidy helps the rich more than it helps the poor. One estimate shows that something like 45 percent of the subsidy benefits people at the top 10 percent of the income distribution. At this level the subsidy is also equal to the government’s entire social spending plus its capital spending. Wouldn’t it be better if this subsidy were reduced somewhat and the savings be used to help the genuinely poor –so that they can better afford to pay for the rising cost of food?

A second concern I have is the so-called “jobless’ nature of the growth in much of this decade. Usually, growth leads to more employment and poverty reduction – but in Indonesia the employment generation and poverty reduction in recent years has been disappointing, although I’m glad to say that employment did show strong growth in 2007. I am not sure why the trend of employment growth has been slow – it could be that much of the growth is coming from plantations and capital intensive industries that do not employ a lot of people; or it could be that industries are loathe to employ additional staff as they grow because restrictive labor regulations will not allow them to be shed in the event of a downturn. What is needed is a careful examination of the causes – something that the World Bank is doing jointly with the government – so that corrective measures can be taken. And this is where your second point comes in –rapidly growing and healthy small and medium enterprises (SMEs) usually helps boost employment and productivity (and hence wages) and also creates skills in the informal sector. But promoting a vibrant SME sector is easier said than done – may countries have tried and failed. At the same time some have succeeded and it is worth seeing what lessons Indonesia can learn from these examples. I would suggest that you take a look at the World Bank’s excellent Private Sector Development Blog to learn more: http://psdblog.worldbank.org, as well as the following IFC-World Bank website specifically devoted to SME development: http://ifchq14.ifc.org/ifcext/sme.nsf/Content/Home.

A third concern I have (and I promise I will stop here!) is to do with Indonesia’s long term prospects – which depends a great deal on its ability to develop world class competitive "knowledge intensive industries". Experience shows that successful middle income countries have been able to become competitive in areas that have traditionally been the preserve of industrial economies – areas that require knowledge and skills, such as electronics, finance, medicine, genetics, ICT, and so on. But there is little sign of such industries developing in Indonesia – and at the same time, it is not clear what the government needs to do promote their growth (introducing the wrong policies could do more damage than good!). So this is clearly an area for further investigation and debate.

Best regards

Vikram

Dear Saadi

Unfortunately, our analysis focuses on East Asia – and therefore, I cannot say much about Pakistan which is part of South Asia. But you can always contact my colleague, Shanta Devarajan, the World Bank’s Chief Economist for the South Asia Region and ask him your question at his excellent blog: End Poverty in South Asia. (http://endpovertyinsouthasia.worldbank.org/).

Good luck.

Vikram

Dear Bruno

You raise a very interesting question. My sense is that the Chinese authorities are probably hoping that the slowdown in the global economy will help their own efforts in cooling the Chinese economy. That may explain the pause in the gradual appreciation of the nominal exchange rate that had been taking place earlier. At the same time, the authorities have been steadily tightening monetary policy (domestic interest rates have been rising steadily). I suspect that unless inflation actually comes down, the authorities will continue to adopt a fairly restrictive monetary stance.

At the same time, the authorities have imposed a few price controls and export quotas of foodstuffs and this has probably suppressed the headline inflation rate somewhat – although to what extent is not known.

Finally, let me add that there is a debate in China on the effectiveness of monetary policies and whether tightening monetary policy can actually slow investment and growth. Those who believe monetary policy is largely ineffective argue that much public and private investment is driven by local authorities who sell or lease land to finance their investments – and this activity is independent of the interest rate. In addition, despite monetary tightening, the real lending rate in China is still marginally negative, so the incentive to borrow continues to be strong.

Best regards

Vikram

Dear Ben

The growth rate of China’s exports more than halved between 2004 and 2007 (from 40 percent to 20 percent) while GDP growth increased from slightly around 9 percent to over 11 percent. That means domestic demand became a more important driver of growth during that period.

Best regards

Vikram

Dear Dr, van Gessel

Thank you for your very kind words. Your proposal on tempe processing appears quite intriguing, so may I suggest you contact our Sector Manager for Rural Development in East Asia – Mr. Rahul Raturi – and seek his advice on the matter. We'll send you his contact details separately after the chat.

Best regards

Vikram

Dear Banjoko

I am not sure I fully follow the logic behind your question, but let me use this opportunity to make one point. China’s rapid growth over the last three decades has been far higher than the growth rate of the United States – so by simple arithmetic, China’s importance in the world economy has grown relative to that of the US. Yet, the GDP of the US is still about four times that of China ($13 trillion compared to $3 trillion) while China has a population that is four times that of the US. That means the average per capita income in the US is about sixteen times that of China. Of course, if the two countries continue to grow at their current pace (say 10 percent a year for China compared to about 3 percent a year for the US), then China’s per capita income will equal that of the US in about 40 years. But a lot of things can happen in 40 years!

Best regards

Vikram

Dear Deborah

I agree with you that price controls dampen incentives to produce. But I am not sure I agree with you when you suggest that distribution channels are to blame for high prices or that "middlemen" are the culprits. I know that this is a popular view in many countries, but there is little evidence to support it. Its quite possible that this may be true in a particular locality in a particular country, but I don’t believe one can generalize from a few instances.

The reality is that foodgrain – such as rice or wheat or corn – is a fairly homogenous commodity (at least the different strains are homogenous). And it would take an astonishingly capable trader to corner the market in a country. In some countries, however, the government may by law grant a public sector company monopoly control over foodgrain trade, but I don’t believe you are referring to such cases.

Best regards

Vikram

Dear Djarot,

My earlier answer to Nasrudin Arief might be helpful. The Indonesian economy is growing strongly recently and we are expecting around a 6% growth rate in 2008. However the ‘jobless’ nature of growth is a concern - although employment did grow strongly in 2007 - and this problem needs more analysis and attention. Sustained poverty reduction will be helped by continued strong growth and be further assisted by the government’s growing focus on targeted programs for the poor and on social spending for health and education.

Best regards

Vikram

Dear Nkoulou

Good question – but I am not competent to answer it! But do keep an eye on the World Bank’s Africa Region website at http://www.worldbank.org/afr for information.

Best wishes

Vikram

Dear Marina

Your projections are based on current trends continuing into the not-too-distant future – and I daresay you are probably right (although I have not done the numbers myself). But China has enormous opportunities to improve the energy efficiency of its economy for the simple reason that it invests about half its GDP – and this allows it to replace old capital stock (machines, buildings, cars, buses, and so on) fairly quickly with new capital stock that could embody new technologies that use less energy. It also has the opportunity to develop new transport systems and plan its rapidly growing urban areas in ways that make them far more energy efficient than the United States. But to do this, there not only need to be strong price incentives to shape consumer choice and encourage energy efficient investment, but also strong urban and other public policies that ensure sound environmental standards and efficient energy use.

Of course, with oil at above $100 per barrel, not only has the incentive to increase energy efficiency increased, but the incentive to find substitutes has also increased substantially. There is renewed interest in wind and solar energy and there has been a substantial increase in the production of bio-fuels (although with the painful side effect of increasing the demand for corn and contributing significantly to its recent price increases).

Incidentally, most of China’s energy does not come from oil but from coal – and if oil-based technologies can be converted to electricity-based technologies, then China’s reliance on oil will be significantly reduced (and it has abundant coal). But coal has its own environmental problems, although in electricity generation China uses the latest technology in its new electricity generation plants that ensure they do not pollute the environment. On average, China puts up four 500 MW electricity generation plants a week (most of them coal-based) – that’s one every two days or so! Unfortunately, I understand that these new environmentally-friendly technologies are sometimes not used because not using them saves more money than paying the fines for polluting the environment!

Best regards

Vikram

Dear Qiwen
As I said in my responses to some other questioners, the Chinese authorities are keen to prevent a situation of significant excess demand which could threaten a more general inflation, and have therefore already been tightening monetary policy in various ways. A moderate slowdown due to weaker export growth would likely be welcome to policy makers, as it would help prevent the emergence of excess demand, while also reducing the trade surplus (which has been a source of trade friction with countries like the US). As you note, the government does have significant room to use more expansionary fiscal policy, should the slowdown in the economy turn out to be more than desirable. However you probably want to keep separate the question of the desirable rate of growth from that of energy efficiency and pollution. The aim should be to maintain high growth that generates new jobs and continues to reduce poverty rapidly, while at the same time applying policies that help firms and individuals change their production and consumption patterns towards more energy efficiency and less pollution.

Best regards

Vikram

Dear Seii,

I’m afraid I’m probably not qualified to give you specific investment advice! But let me suggest that further development of domestic capital markets is going to be one of the most important and exciting economic developments in East Asia in coming years. Most companies in the developing countries of the region still derive the bulk of their financing from banks or internally generated profits. However stock markets and domestic bond markets, while still relatively small, are growing fast, especially as governments make strong efforts to improve the legal, regulatory and technical underpinnings needed. The development of such markets will in turn boost development by providing firms and individuals access to more diversified forms of financing and new ways to diversify risk.

Best regards

Vikram

Dear Mr. Lutfi

I know Mr. Boediono well and I would certainly not presume to give him any advice – and I think his move to Bank Indonesia augurs well for the country. Right now Indonesia is facing the same concerns and problems that are confronting all the other countries of the East Asia region – namely cost push pressures that are leading to rising headline inflation. Bank Indonesia’s primary objective is to ensure that this one-off increase in food prices does not trigger higher core inflation – but that’s not an easy task!

Best regards

Vikram

Dear Show

The reason we do not include Myanmar in our analysis is because Bank activities are limited and no financing is provided to the Government. In line with the Bank’s practice of engagement in fragile and prolonged crisis situations, we continue to conduct analytical and monitoring activities, including providing technical support to IMF Article IV missions and missions led by other donors, and a small amount of trust-funded grant support for global public goods through non-government arrangements (in particular, to FAO for avian and human influenza-related issues). As with other countries in non-accrual status, the Bank’s limited activities with respect to Myanmar aim to maintain the World Bank’s analytical and operational readiness to assist, when circumstances warrant, as part of an international re-engagement effort that would include progress towards arrears clearance. Furthermore, data are often so scarce that it prevents us from doing analytical work with much depth.

Best regards

Vikram

Dear Rae

This is a really good question for which the answer would vary depending on the country concerned. As the East Asia Update noted, one set of effects of further “aftershocks” from the financial crisis in the US will be felt through either the stock and bond markets, or more directly through the balance sheets of banks. As far as stock and bond markets are concerned, they have already experienced – and absorbed – the initial shocks, but countries need to be concerned that further shocks do not lead to significant capital outflows. But even if this were to happen, most if not all countries of the region have significant reserves to deal with the situation – or they could allow greater flexibility in the exchange rate if necessary. Most corporations rely on banks for their financing – and from what we can discern the banks seem to be in good shape to continue providing loans to them.

There is a possibility that the aftershocks will also lead to a deeper and longer slowdown in the US – in which case the impact on East Asia will be through even slower growth in exports that will then feed through into slower growth in incomes. Here again, given their already rapid growth, East Asian economies could potentially slow further and still be growing reasonably fast. At some point however, if growth slows to the point that it leads to concerns about the impact on the poor or perhaps to social tensions, East Asian economies have the fiscal space to introduce expansionary fiscal policies to stimulate the economy and substitute domestic demand growth or export growth. I should note, though, that this fiscal space may not be all that large, given that the countries in the region are already facing rising inflation and expansionary fiscal policies could potentially add to those pressures.

Best regards

Vikram

Dear Zulgerel

China has become a key engine of growth through trade and financial flows – and its rapid growth has promoted exports and investments in the rest of East Asia. Increasingly, the countries of East Asia are being connected through production and financing networks – and China is a key part of this structure in large part because if its enormous size, but also because of its rapid growth and high investment levels.

As far as analysis of these structures are concerned, you may wish to look at the World Bank’s report entitled: "An East Asian Renaissance: Ideas for Economic Growth" – published last year - on the web http://go.worldbank.org/E3DKQVL300.

Best regards

Vikram

Dear Sarah

You have presented well the challenges of conveying policy recommendations that cut across sectors and ministries. Some countries have already set up inter-ministerial committees to deal with the problem of rising food prices – which include the central bank, the Ministry of Finance, the Agricultural Ministry, the Ministry of Industry, and so on. In others, decisions are being coordinated by offices of coordinating ministers or the prime minister. So it all depends on what the specific decision making structures are in each country – but without doubt, it is important that such policies be supported from the very top of the government hierarchy.

Best regards

Vikram

Dear Ramon

You may want to look at an earlier question on rice that I think should answer your question.

Best regards

Vikram

Dear Show,

Sovereign wealth funds are of two kinds – either they come from the reserves of the central bank or they are financed from the accumulated savings from government fiscal surpluses. In either case, the ownership is with the sovereign authority of the country – hence the name “sovereign wealth fund”. That is why the Myanmar government cannot have any claims on the Singapore sovereign wealth fund (actually Singapore has two: Temasek and the Government Investment Corporation).

But that does not preclude the Government of Myanmar having resources invested outside the country – as many governments and central banks, and indeed sovereign wealth funds, do.

Best regards

Vikram

Dear Richard

First of all, let me thank you for performing such an important service as the disabled are often a forgotten group in developing countries.

Coming to your question – to the extent that programs for the disabled are dependent on government budgets or voluntary contributions from the private sector or households, any broad economic slowdown is likely to also lead to some erosion in financial support. This is something that we need to keep a close eye on. I also worry that were the slowdown in East Asia to accelerate and lead to lay-offs and more unemployment, then the disabled could be affected disproportionately. In such circumstances, there is a strong case for governments to consider programs to protect the disabled as well as ensuring that the disabled are not discriminated against in the workplace.

Good luck with your work.

Best regards

Vikram

China is an interesting case of rising inequality accompanied by rapid poverty reduction. In recent years rural incomes have been rising at about 5-6%, while incomes of the wealthier urban populations rise at 10%. So, the Gini measure of inequality has continued to increase, reaching a level now about the same as in the U.S. At the same time, the income gains in rural areas are enough to rapidly move people out of poverty. The share of the population below our "cost of basic needs" poverty line declined by one-third between 2004 and 2007 (from 10% to 7%). Another factor supporting inclusive growth is that each year millions of people relocate from low-productivity rural employment to higher productivity urban employment.

China provides many interesting lessons that other developing countries can learn from. I would highlight four factors that have helped it grow well: (1) it is very open to foreign trade and direct foreign investment (but not portfolio flows); (2) it has developed good infrastructure in roads, rail, ports, power, and telecom primarily through a "cost recovery" policy that prices those services high enough to pay for the investment and maintenance; (3) dozens of cities have created good investment climates for the private sector and these cities compete with each other to attract investment; and (4) Chinese people (though not necessarily the government) investment a lot in education.

The poverty line we prefer to use is 888RMB of consumption; this is an estimate of what is needed to provide 2100 calories per day and the other basic necessities of life. It happened that at the old PPP estimates, this line was almost exactly $1 per day at PPP. With the new price estimates, this line will now be less than $1 per day, and the new $1 per day line will be somewhat higher. The World Bank research department has not yet published a final estimate. But they have given us a range into which the new poverty estimate will fall: the old $1 per day estimate was 64% in 1981; that will rise to somewhere in the 71-77% range; the old estimate for 2004 was 10%; that will rise to the range of 13-17%.

China has more than 50 ethnic minority groups scattered around the country. Some live in relatively isolated western or mountainous areas. These areas have had some economic growth but not as much as in the dynamic coastal areas. Poverty has declined for ethnic minorities, but not as quickly as for Han Chinese. The World Bank has a number of projects that benefit ethnic minority populations. "Basic education in the west" supports literacy in native languages. The soon-to-be-approved "Guizhou cultural heritage preservation project" will help ethnic communities in the poorest province of China preserve their living heritage.

The definition of inflation is a rise in prices. High food prices, caused by price hikes on the international markets and domestic supply problems, pushed up inflation in 2007. In January 2008 consumer price inflation reached 7.1 percent. Inflation eats into people’s purchasing power. If not contained, it also threatens macroeconomic stability. That is why China’s policymakers, as policymakers in other countries, are concerned when inflation is rising. So far, the high food prices have not spilled over into overall inflation pressures. However, some of this spill-over has happened, and the authorities are right to be keen to prevent large scale spill over and contain inflation pressures. As we mention in the quarterly, we agree that, in the face of price pressures on international markets, a strong exchange rate helps dampen price pressures. The government seems to be of the same view: the pace of appreciation against the US$ has increased since the fall of 2007, and is expected to remain considerable.

I don’t think I would call the downturn in the U.S. a "crisis," but an important theme of our quarterly report is that the U.S. economy is slowing and that this will affect China and the rest of the world. We are cautiously optimistic, however, that China will continue to grow rather well – our projection is 9.6% for 2008 – and that will help support global growth and make it easier for the U.S. to resume healthy growth.

Industrialization has had very significant pollution costs for China. In the case of water pollution the situation has improved somewhat in recent years. Over 90% of industrial discharge is treated, so that industry is no longer the main source of water pollution. The biggest source is un- or poorly treated household waste (only slightly more than 50% of urban household waste is treated). Most cities are investing rapidly to expand waste-water treatment, so water quality is likely to continue to gradually improve. Agriculture is also a major source of water pollution through run-off of fertilizer and pesticides. This is harder to change because it involves hundreds of millions of peasants. What is needed are extension services for farmers to better understand fertilizer and pesticide use; effective bans on the most dangerous chemicals; and consumer movements raising awareness about safe food.

Migrant workers are both a challenge and an opportunity for China. The fact that so many rural people want to move to cities indicates that they have better economic opportunities there. China has a registration system that to some extent manages migration. Even with this system in place, 200 million people or so have moved to cities in the past 20 years. The World Bank is working with three Chinese provinces on improving the training and employment services for migrants so that they integrate more successfully into urban life. Programs to help migrants get skills, find jobs, and get access to social services in their new location can help China sustain its rapid growth and improve the lives of the rural population.

China will soon emerge as the largest user of energy in the world, while its domestic supply of energy is modest. Because of rapid global growth and dwindling supply, traditional sources of energy are becoming more scarce. China recognizes the scarcity issue and has set a highly amibitious target to increase energy efficiency by 20% during its current five-year plan. It has a number of ambitious administrative measures: closing less efficient power plants, raising fuel-efficiency standards of cars beyond the U.S. level. However, in my view it is not sufficiently taking advantage of market measures. China does not pass the full cost increase of petroleum in the world market through to its consumers. Its energy prices are similar to the U.S. If it followed a European policy of higher energy prices it would cut its energy use significantly. China also has an ambitious program to develop renewable energy sources and to increase their role in the overall energy mix.

In China the livestock sector, like the rest of agriculture, is primarily managed by private farmers. The government provides some support in the form of extension services, but the development is mostly based on private investment. Agriculture overall has been growing at a healthy rate of 4-5% in recent years. Further grain production has only modest potential, so that most of this increase comes from livestock, fruits, and vegetables.

The percentage of FDI going to agriculture is very small. Most FDI goes to manufacturing, and some goes to service sectors such as banking and hotels.

We do not think that China’s economy is significantly overheated. We belief that the rapid growth in China has been combined with rapid expansion of the capacity to produce ("potential output" has grown broadly in line with actual GDP growth). That is why we think that China has not seen significant excess demand and domestically generated inflation pressure of the type that we often see in other emerging markets when they grow rapidly. Although food prices have increased drastically (see answer to Dan Berg’s question on inflation for the reasons), non-food inflation remains at 1 – 1.5 percent year on year. Other indicators that support the judgement that China’s economy is not significantly overheated are that there are no systemic bottlenecks in the real economy and there is no current account deficit.

With international interest rates falling and Chinese rates increasing, the net gain/cost to the PBC is becoming less favorable. And the impact is material. For instance, every 1 percentage point of lower US treasury bond yields would mean about US$ 10-15 billion less revenue for the PBC against its cost of domestic liabilities. Up to some limit, we would not expect the cost of sterilization to be a dominating factor in determining policy. But there are limits. With the RMB traditionally anchored around the US$, fluctuations in the US$/euro rate indeed affects the RMB exchange rate. We agree with governor Zhou, who has noted that with trade with countries other than the US increasingly important, China’s exchange rate should increasingly be looked at in (trade weighted) effective terms, rather than in terms of the US$ rate. The more rapid pace of appreciation against the US$ in recent months is likely to be motivated at least in part by the desire to dampen price pressures.

Development has been faster in coastal cities because of their better location and their earlier moves to reform. All parts of China have experienced rapid growth and poverty reduction, however. China overall still is only a country with $2,000 per capita GDP, so many interior locations look poor. But if you saw them 20 years ago, they were far poorer then. Many of the interior parts of China are now growing very well and central provinces certainly have the potential to develop successfully. But some parts of the north such as Inner Mongolia, Shaanxi, and Shanxi are severely water-stressed, and that limits their potential. It would be economically rational for some people to migrate out of these water-stressed areas to other parts of China.

The State Environmental Protection Agency has been working with the World Bank to estimate the costs of pollution in China. For example, we estimate that the health costs of air and water pollution amount to 4.3% of GDP. In principle you can use these kinds of estimates to adjust traditional GDP measures to become "green GDP." Personally, I prefer to keep the two estimates separate, as this is more useful for policy. The traditional GDP measure tells you how much economic activity there is (value of all goods and services produced in China in a year). The estimate of the cost of pollution tells you that if the pollution can be cleaned up at a lower cost, then it would be net benefit to society to do so. In the case of China, many of the important steps needed to reduce air pollution are not that expensive so that it is clearly in the interest of Chinese cities to do so.

China in recent years has been the most successful developing country so we have to say its transition so far is effective. However, it faces a number of major challenges: (1) natural resource scarcity and environmental degradation; (2) growing social disparity, especially between urban and rural populations; and (3) macroeconomic imbalance (large and unsustainable trade surplus). The three problems are inter-related: spending more on social programs and environmental protection will help rebalance the economy away from exports towards domestic needs.

As you observe, increases in prices of food and housing have been particularly high recently. Housing prices are not captured by the CPI. Food is. And, indeed, prices of manufacturing products have seen much less price inflation. That is in part because of good reasons: rapid productivity growth. It is also because of relentless competition. The factors determining the RMB exchange rate are many. One important set of factors is the demand and supply of foreign exchange. On this account, we would expect to see further strengthening of the RMB as China' s external surpluses remain large.

The authorities can also decide to use a stronger exchange rate to offset high prices of imported products. China has done that in recent months, when it increased the pace of appreciation against the dollar. The expectation is that the authorities will continue along these lines. Market consensus is for an appreciation against the dollar of around 7-9 percent or so. As China trades increasingly with nations other than the US, it becomes increasingly important to look at China's trade weighted exchange rate instead of just the US$ exchange rate.

For the moment, we mainly look at the impact of a slower world economy on China. At the moment, China's domestic economy is growing strongly. Thus, China may become a net driver of world growth in 2008. Given the increasing role of China, if sentiment were to turn and the domestic economy were to slow down, that would be a negative for world growth. (2) We think that price controls may be effective in the short run in containing inflation expectations. As time goes on, we feel that the negative incentive effects (no feedback from higher prices to increased supply) increase. That is why we think that price controls should be used sparingly and not for too long a time. To date, the administrative measures taken in reponse to food price pressure do not seem to have protection as a motivation. If the food price pressures last for long other measures, including direct subsidies, may be better.

China began its economic reform with 80% of the labor force rural and the other 20% mostly in industry. With little arable land per capita this left most of the population very poor. Quite a bit of China’s growth has been driven by gradually shifting labor force out of agriculture into industry and services. I would say that China is about half way through this transition. The process has increased prosperity for pretty much every household in China because urban jobs pay more than rural ones, migrants send remittances to relatives back in the countryside, and the out-migration improves the ratio of land to labor so that remaining farmers can earn more and live better. I have a paper you can access online with more details: "Poverty, inequality and social disparities during China’s economic reform"

Agree. We always have a figure in our China Quarterly Update on the contribution to growth of domestic demand and of net exports. Even in the years 2006 and 2007, when China's trade surplus increased rapidly, more than 3/4th of growth came from domestic demand. In 2008, this share is expected to increase considerably.

We think indeed that as a large economy with robust domestic demand, China will be able to see decent growth even with a weak economy (see our quarterly for more specifics and details). And, indeed, given China's increasing role in the world economy (it is likely to be the country with the largest contribution to world GDP growth this year), China's robust domestic economy may help dampen the negative pressures on world growth coming from other parts of the world.

If need be, yes. We think that, if need be, China can ease policies a bit to dampen the negative impact of slower world growth. We think that because China's macroeconomic position (including the fiscal one) is strong.

The projected slowdown of the U.S. economy is pretty significant so we feel that the mark down in our forecast is fairly modest: old earlier forecast for 2008 was 10.4%, so we have marked that down less than one percentage point to 9.6%. In recent year net exports have played a role in China's growth and we see that diminished. This will have some spillover effect on domestic investment as well. For the moment we do not anticipate countercyclical measures so that our forecast is based on the current policy stance. However, we note that there are downside risks in the global economy, and if the U.S. and global economy grows more slowly than expected, then some countercyclical measures in China would be called for. Current fiscal policy is conservative; if needed the government could easily stimulate the economy with temporary tax breaks or additional spending. That is another reason to be cautiously optimistic that China can still grow at 9+% despite a global slowdown.

I am afraid that the World Bank is not a good source for that kind of information. I would guess that the Indian government would be a better source of information on major Chinese companies investing in India.

We do not think that there is that strong a connection between the stock market and the real economy in China. Very few households are looking to stock market gains to fund their consumption. So, the recent correction in stock prices does not affect the vast majority of households. The stock market has also not been a major source of funding for new investment. Most of the dynamic private sector firms have had difficulty listing. That is beginning to change so that in the future the stock market could play more of a role funding investment. The correction that has occurred so far should not be a major deterrent to new firms listing.

China is on track to become a world economic power. Our answer to Dr. Urkude suggests some of the success factors that might be relevant to a large developing country such as Nigeria. Going forward, China faces some challenges to continue its successful development. First, it needs to continue to strengthen basic economic institutions such as the legal and financial systems; second, it is paying too high a cost for its growth in terms of environmental degradation and needs stronger measures to conserve natural resources and protect the environment; and third the large-scale rural-urban migration will continue for another 10-20 years, and managing that smoothly is both a social and environmental challenge.

Personally, I think that the Olympic games play an important role in increasing understanding among nations and peoples. I think that the Beijing games will help the rest of the world understand and appreciate China better. That kind of understanding helps underpin peace, stability, and economic relations. So, yes, I do think that the 2008 Olympic games will have long-term benefits for the global economy and for China.

We find it difficult to say on the basis of one month. But, yes, credit growth was very strong in January. Of course this was on the back of surpressed credit expansion in the last months of 2007. The coming months will tell more. However, as we note in the Quarterly, we think that the authorities will feel somewhat constraint in hiking interest rates and may use other instruments to keep money growth in check.

We do our growth forecast based on our assessment and assumptions of the factors driving the "demand side": exports, imports, investment, and consumption. We spell out this assessment and those assumptions in our China Quarterly Update. Actually, in recent years China’s official growth projections (or targets) have been set rather low compared to both outside analysts including us and the final outcome. For instance, the official forecast or target for 2007 was 8 percent. Our projection for 2007 was around 10 percent (if I remember correctly), and the final outcome was a whopping 11.4 percent.

So far inflation is concentrated in food, with little spill over to date and little obvious excess demand. That is why, while the authorities rightly work on having relatively tight monetary policy and manage expectations, including by some temporary price controls, the measures are not drastic. A stronger exchange rate (against the US$) is also used to dampen price pressures. In that sense, the RMB/US$ exchange rate is affected by China's inflation and the measures against it. However, how the RMB/US$ is affected by the other measures to fight inflation is difficult to say.

Both approaches are needed. For example, soil fertility is a major constraint on productivity in Africa. This urgently requires increasing fertilizer consumption which is less than 10% of other developing regions (in terms of nutrients per ha). However, this has to be combined with approaches such as legumes and agroforestry which increase both soil fertility and soil structure and which have been successfully adopted in Zambia. These different approaches and examples of their success are outlined in chapter 7 of the WDR.

OECD farm subsidies and protection cost developing countries about five times what they provide in aid to agriculture (chapter 4 of the WDR). The Doha round of trade negotiations must progress, and the top priority is to reduce trade distortions that hurt developing countries most—especially those in cotton and oilseeds. But this impact differs across products and countries. With full trade liberalization, international agricultural commodity prices are estimated to increase on average by 5.5 percent, while those of cotton are expected to increase by 21 percent and oilseeds by 15 percent.

However, the average distortion in world prices from trade policies is about 5 percent for food grains (lower than for traditional export crops), with imperfect transmission of world prices to domestic producers given infrastructure and transport costs. This long-term effect is small relative to recent price changes on food grain prices, as reflected by the increase in world maize prices by about 40 percent over the past three years. So the overall effect of trade distortions on food grain prices in the poorer developing countries is likely to be small.

In many countries, yield losses of cereals will be significant--as much as 20-40 percent with temperature rises of 3-4 C.

It is urgent that countries most affected by climate change invest in adaptation measures. Richer countries that have been the cause of climate change have to provide financial support to adaptation in poorer countries.

The most urgent investments are in crop varieties tolerant to drought and heat, and irrigation systems. Also countries need to strengthen responses to increase vulnerability through crop insurance schemes and safety nets.

The emphasis in each countries should be on improving household food security which depends on the supply of food and the means to access food. In many small island countries it may be more efficient to import food grains, and focus on programs aimed at reducing poverty and providing safety nets to the poor.

Most countries experience this problem of lagging regions due to several factors such as poor agroclimatic conditions, poor infrastructure and social and ethnic exclusion (see chapter 2 of the WDR). The solution to these problems is very specific to the region. In some cases, investments in infrastructure, irrigation and agricultural technology can tranform lagging regions, as in the Cerrados of Brazil. In other cases, these regions may produce important environmental services . Several countries of Latin America are now paying farmers to preserve biodiversity and watersheds. But there are also regions where the best investment may be in educations and skills so that people can successfully migrate to other regions and sectors.

Genetically modified organisms (GMOs) do offer promise to increase food production and quality for the poor—both smallholders and poor consumers—but greater international and national public support is needed to go beyond today’s commercially-driven technologies to develop pro-poor traits and to regulate their safe testing, release, and use. Vitamin A enhanced rice is an example of propoor technology under development which could save millions of lives. This will entail increasing support to public national and international research for crops grown and consumed largely by the poor, as well as strengthening capacity in biosafety evaluation and regulation.

The World Bank is not against subsidies per se. Instead, we argue these should be well targeted toward achieving the highest possible payoff. The World Development Report takes a pragmatic position, favoring "smart subsidies" in select circumstances. Smart input subsidies should be transparent, well targeted to the poor (for example through a voucher or coupon system), should help jumpstart agricultural input markets and should be part of a comprehensive strategy to improve agricultural productivity.

In the wake of extreme drought and low agricultural productivity in early 2005, the Government of Malawi reintroduced a broader agricultural input subsidy program during the 2005/06 cropping season. Approximately 130,000 t of fertilizer was distributed through a coupon based distribution program to more than 1.3 million farm households. The following year, approximately 1.5 million farmers received coupons for the purchase of 150,000 t of fertilizer and two million farmers received coupons for free maize seed. In 2007/08 more than 1.7 million farmers are expected to coupons for 170,000 t of fertilizer and almost 3 million farmers are expected to receive coupons redeemable for seed. Over 50% of the budget of the Ministry of Agriculture and Food Security is allocated to pay these costs. Donor funds are paying some administration costs and much of the costs of the seed subsidy.

In combination with favorable rains, this program has contributed to sharp increases in maize harvests in 2006 and 2007. During the most recent harvest, the country produced an estimated 3.4 million metric tons (a surplus of 1.2 million metric tons above national requirements).

The Bank’s position is that the program should be targeted to achieve as large a set of development gains as possible. In effect, these should be “smart subsidies”.

First, these should target farmers who cannot afford fertilizer purchases in order to avoid displacement of commercial fertilizer sales. Though since most Malawian farmers are extremely poor, this commitment would still encompass large numbers of households.

Second, the subsidy should be linked with the best possible research and extension advice in order to be sure farmers are getting the highest possible gain from this investment. The fertilizers being provided need to be targeted to variable soil and rainfall conditions around the country. These should be linked with advice on cropping practices that will improve both fertilizer and water use efficiency such as timely application, good weed control and conservation farming practices.

Third, the subsidy should be managed in ways that encourage the expansion of commercial investment in wholesale and retail trade in agricultural inputs. This is a gain partly made by shifting from free input handouts to the use of vouchers redeemable at retail shops. But retail trade still needs to be expanded in many outlying areas.

Over time, commercializing farmers should no longer need subsidies to encourage the continuing adoption of improved technologies and farm profitably. Though there may be a continuing justification for input subsidies to improve the welfare of the poorest of the poor who would otherwise continue to depend on food aid.

Smart subsidies are important but need to be weighted against other priorities in national budgets For example, Malawi only spends 3% of its agricultural budget on R&D--an important source of future productivity increases.

The payoffs to investments in the agricultural sector are very country specific. However, hundreds of studies have found high payoffs to agricultural R&D. Also many studies support good payoffs to investments in rural roads, irrigation, and education. See Chapter 1 and 7 of the report.

These are probably the easy wins, but even these need to ensure that resources are used effectively.

We agree that this is a major challenge that we discuss in chapter 5 and focus D. We put a lot of emphasis on stronger producer organizations as a way of including smallholders in new food markets, and increasing their bargaining power. Many of these organizations are now also operating internationally with direct sales to global food chains, often through public private partnerships. Smallholders also need special attention in access to assets and supporting services such as agricultural extension and market information.

We agree that this is a common problem. Microfinance is being provided in many situations without collateral, especially for livestock. New arrangements include lending to groups, without collateral. Community based savings and loans institutions can also help. More examples are given in chapter 6 of the report.

The World Development Report argues for more decentralized and participatory approaches, especially in the highly diverse systems of SubSaharan Africa. It also makes the case for conserving biodiversity both through genetic conservation and avoiding deforestation (chapter 11). The Report argues that carbon financing should be made available for avoided deforestation--and it seems that the recent Bali climate change conference has supported this approach. International support to the Global Crop Diversity Trust should be increased.

The World Bank now has many programs that aim to improve the asset base of the extreme poor in order that they do not depend on relief programs. Many of these programs are implemented through community-driven development approaches. An example is the Food Security program in Ethiopia where some 5 million people are dependent on food aid.

US farm policies have significant costs to developing country farmers increasing poverty and hunger. For example, subsidies to US cotton farmers decrease cotton prices by 20%. Removing cotton subsidies alone is estimate to increase the incomes of West African cotton producers by 8 to 20%. Since African cotton producers are poor, this would have direct impacts on reducing of poverty and hunger.

Translation by World Bank:
What role has foreign aid played in the development of East Asia? Has it, according to you, effectively helped economic growth and poverty reduction? What are, according to you, the checks on this effectiveness? How can this aid be improved?

The role of foreign aid (ODA) in East Asia has changed over time and varies greatly across countries. For the region as a whole ODA has fallen to less than $10 billion a year, which is only about 0.4% of GDP. This is down from around 1% of GDP in the 1970s and 1980s. It is now also much less than the average for developing countries as a whole, which is also around 1% of GDP.

Historically East Asia provides a number of examples of countries which have used ODA quite effectively to help spark rapid growth and which have become less dependent on it over time. Korea for example used to have ODA worth over 5% of GDP back in the 1960s. This fell to 0 in the 1980s and 1990s and Korea is now itself emerging as a provider of foreign aid. In most middle income economies of the region it also down to less than 0.5% of GDP now. For example in China, ODA is now only about 0.1% of GDP.

But there is also a wide range of experiences. As you would expect, ODA levels are rather higher in the low income economies of the region. In recent years ODA has been averaging around 4% of GDP in Vietnam and 10-15% of GDP in Cambodia and Lao PDR. In some of the smaller Pacific Island economies ODA reaches even higher levels, sometimes as much as 30-50% of GDP.

Those economies that have been successful consumers of ODA have generally used it to strengthen some of the basic conditions for development, for example education and health, infrastructure and strengthening institutions and governance, while at the same time carrying out reforms that have encouraged entrepreneurship and private sector investment. In other words they have used it as a springboard for reforms rather than as crutch to avoid or delay reform.

This comparison has attracted a lot of interest in recent years, especially why is growth in China higher than in India.

The reasons behind the economic performance of any country are always very complex involving history, geography, culture, institutions and policies. And it is even more difficult to give satisfactory answers in comparing the performance of different countries which may differ in all these respects.
A first point to note is that while India’s growth rate has been less than China’s, it has been accelerating, getting closer to China’s in recent years. Poverty is also falling. I have visited India almost every year for the last 30 years. There are obvious and visible improvements in the living standards of the people.

One part of the answer to growth differences maybe simply that China started reforms in 1979, more than a decade before India, which began in 1991.
Partly as a result, China is today more fully integrated into the world economy, with much higher levels of international trade and FDI, and the benefits that go with integration. China also has a head start in building up its physical infrastructure. However, India is also making progress in these directions, and the game is far from over. Observers also note areas where India has advantages over China, for example in long established and better developed systems of corporate governance, business law, and other so called “soft infrastructure”. Income inequality is also lower in India than in China.

The last point I want to focus on is the question about democracy and its role in development. The first point to make is that people generally view democracy as something that is good in itself, apart from its relation to economics. To be able to have a voice in choosing one’s government and in deciding the policies of one’s country is something that adds to the sense of dignity and self worth of the individual, and it is valued as such.

Of course people also value other things, such as economic prosperity and security. Here the cross-country evidence suggests that there is no clear or simple relationship between democracy and economic growth. i.e on average long run growth rates in democratic countries are neither higher nor lower than in non democratic ones. However there is some evidence that growth is less volatile in democracies than in non-democracies, and also that democracies are better able to handle economic shocks because they provide better institutions for addressing the social conflicts that may intensify during shocks or crises.

I see four points to be raised here. It is true that rural poverty is much greater than urban poverty in East Asia. It should also be noted that East Asian population is largely rural, which is likely to change in the next 20 years.

The second point is the cities in East Asia are acting as magnets to the rural poor. In some countries, industries that depend on not highly skilled labor are booming together with East Asian economies. In these countries, areas will continue to act as a magnet to the rural folk, who may want to manage this flow of migrants better by achieving a more balanced economic growth.

On other countries, overpopulation of magnet of cities' reliance on the economy in a single metropolitan area are also signaling the need for more balanced growth.

Finally, it should be noted that this doesn't fail to recognize that cities are a major force in the region's fight against poverty.

I think that these two questions are fundamental to the issue of urbanization, and I would like to start by answering the second question: How will housing needs be supplied without getting to urban ghettos?

Basing on the previous answer that I just gave, as I mentioned, managing or influencing the flow of migrants is important. Some countries in the region are attempting to do just that by implementing different policy instruments, an effect which in turn may have unintended consequences such as affecting the terms of trade between rural and urban areas.

The other side of the question is specific to the urban side. There are several aspects that affect housing supply in cities. Some, like the availability of long-term lending markets, are outside the realm of local authorities; yet, others such as urban planning, housing and infrastructure standards, economic instruments that impact housing and locations are generally within the local authorities' sphere of influence.

In order to avoid, then, the ghettoing in urban areas, having a menu of policy instruments at the local level that is adequate to the capacity to implement it would, in effect, better balance the cities' growth, maintaining public goods, such as flood control and things like that, improving the cities' livability.

In the first question for Mali, that is, what are the likely implications of supply of water and food for the growing urbanization?
In reference to food, it seems to me food is a tradable commodity, and the region is fairly open to trade. So just as it is already happening, it is likely that in the future food will come from trading with countries that have comparative advantage in producing food.

On the other hand, water is much harder to trade with other countries, and water in some areas of East Asia is a major problem. Some of the region's mega citieis are located in very arid areas where water scarcity is a problem. In addition, water pollution is decreasing the availability of clean water for general use of the urban population, and for difference sources of economic growth such as industry.

By and large, throughout the world, water generally has very unclear property rights. So, the solution to this problem, in my opinion, comes by at least by clarifying property rights over water--in other words, who owns what, than allowing for water trading and enforcing water property rights.

One should also have appropriate pricing both at urban and rural water uses in order to allocate the water more efficiently. It should be noted that very often, in the world, water is used for activities that do not have the highest value.

In addition, one should have instruments and regulations in place that actually attempt to correct water-related market failures such as water pollution.

First it’s worth noting that Indonesia was the economy hardest hit by financial crisis of 1997-98. This was followed by a genuine political revolution, with a transition from authoritarian rule to democracy with a high level of decentralization.

Naturally it has taken some time for the new institutions to start functioning and for domestic and foreign investors to regain confidence.

Nevertheless the government is now pushing ahead with reforms, for example to improve the investment climate, strengthen the financial sector, tackle corruption and improve the rule of law. Some of the reforms have been tough, for example the decision to reduce fuel subsidies in 2005. That was needed to ensure that the government’s fiscal deficit did not increase in an unsustainable way, which could have led to loss of confidence and much worse economic volatility. The government softened the impact by putting in place a temporary Unconditional Cash Transfer program for the poor and it is now also increasing social spending programs at the community level.

The benefits of reforms are now coming through. Investment spending and economic growth were accelerating in the latter part of 2006. Growth exceeded 6% in the last quarter of 2006. Sustained fast growth supported by wise, inclusive economic and social policies is the surest way to ensure widely shared improvements in living standards in the long run.

We should start by noting that there is great diversity in economic levels and conditions in East Asia, more than in most other regions. Here some economies like Korea, Singapore, Hong Kong and Taiwan (China) have already reached high income status, while others are still in the low income category.
But it is true that many of these economies have achieved much higher growth rates over sustained periods of time than is the case in most other developing regions. This has been heavily studied but there is still no complete agreement on the sources of the so-called East Asia Economic Miracle. But many would probably agree with the following characterization. Most East Asian economies have put into place and generally followed what are widely accepted as sound economic principles and policies. But - and this is the more difficult part – they have also been very creative and flexible in finding the institutional forms needed to successfully implement these principles in the particular social and political conditions of these countries.

First, these countries have tended to have a strong focus and consensus among policy makers and elites on achieving rapid and broadly shared growth. The focus on ensuring that all levels of society share in the benefits of growth is important because it means that high growth is more socially sustainable over the long run. One of the ways East Asian countries have ensured social inclusiveness is by a strong focus on universal basic education and now, increasingly, on secondary and tertiary education, so that wide sections of society are able to contribute to and benefit from growth.

Second, they have generally followed prudent macroeconomic policies – limited fiscal deficits, cautious monetary policies and modest inflation. This has limited uncertainty and volatility and has tended to allow growth to be sustained over long periods.

They have generally encouragement of private sector activity and ensured protection for property rights, meaning basically that business people who undertake risky investments feel reasonably confident they will be able to secure the returns to those investments, rather than being expropriated by politicians, bureaucrats or other influential insiders. They have also generally taken an outward or export orientation, which requires firms to face the discipline of global competition, and therefore always to be under pressure to become more efficient.

Lastly, government institutions in these countries have been reasonably competent and effective in implementing government policies. This is important because East Asian governments have often taken quite activist approaches in addressing market failures, for example through public investment, use of fiscal incentives or other instruments. These require competent government to implement successfully. They have also been quite pragmatic in making such interventions, evaluating them on the basis of their contribution to overall development, making adjustments as needed and generally not letting interventions turn into major sources of waste and corruption.

With respect to PNG, it should be noted the country faces much more difficult conditions than most other East Asian countries. For example it has a difficult geography – very mountainous with great difficulties for transport and communications. There is extreme social fragmentation – for example 800 distinct languages (not just dialects). Human capital development is low.

As the question notes, countries heavily reliant on natural resources also face special problems. The rents from such resources can be easily captured by narrow interest groups rather than being used by broader development purposes. Fluctuations in international commodity prices can contribute to high volatility in expenditures, including excessive and wasteful spending during boom times. This is not inevitable. E.g. countries like Malaysia and Australia have successfully used natural resource wealth to promote broad development. But they have needed to develop good quality government institutions capable of managing natural wealth in an appropriate way.

We took up this question of so-called middle-income trap in our East Asia Update as part of our assessment of where the region has come 10 years after the East Asian financial crisis, which began in 1997. It's useful to just have a little bit of background on that. It was--remembering at the time of the crisis how much gloom and doom that it was about the possible prospects for the East Asia region. Many analysts were saying, for example, that the region, that so-called East Asia miracle was over, that the region might lose a decade of growth in a way that occurred in Latin America after the debt crisis.

But, in fact, things have turned out very differently in many ways. There has been actually tremendous progress in the 10 years since the crisis; for example, the dollar value of the GDP of the region has actually doubled, real per capita incomes have gone up around 75 percent, and real per capita incomes have exceeded pre-crisis levels in all of the economies that were affected by the crisis.

Poverty has fallen dramatically. The number of people at below $2-a-day income levels before the crisis was 50 percent of the population of East Asia. That has now fallen to around 29 percent, which is a dramatic improvement.
And, on our estimates by the year 2010, which is just a few years' time, more than 9 out of 10 people in East Asia is going to be living in a middle-income country, and that then raises some interesting questions, because middle-income countries face very different kinds of problems as compared to low-income countries.

When we look across the experience of developing countries around the world, one thing that is noticeable is that while quite a few countries are able to make the transition from low income to middle income, far fewer countries have made the transition from middle income to high income, and this seems to be because middle-income countries face much more complex challenges, complex in technical logistical terms, complex in terms of how to maintain social cohesion, complex in terms of finding a competitive niche for your country in the world economy, complex in political terms, et cetera.

And so, for example, we see there are many countries that are in, say, Latin America that achieve middle-income status many decades ago but which failed to become high income or remained middle income for a long time. Similarly, in the Middle East, there are similar economies.

The question would East Asian countries be in danger of falling into that trap, and in this report we focused on three challenge that is facing the region. The first one we said is maintaining growth in a sustainable way. And here there are two different questions. On the one side, you have China, which is really growing at very rapid rate, so there the question is not really how to increase growth, but there the question is maintaining high growth sustainably. And what we see is that while China has experienced this tremendous growth, it has also been accumulating a number of stresses and imbalances, the most obvious one, for example, is environmental costs. It's now estimated that 20 of the 30 most polluted cities in the world are in China. Growth has also--imbalances have also arisen, for example, with a very high reliance on investment relative to consumption, on industry relative to services, et cetera.

So, the Chinese authorities themselves have become much more conscious of this, and are aiming at rebalancing growth. So, that is one set of challenges.

In other East Asian countries, the challenge is, we noticed since the crisis in many of the post-crisis economies, growth has been something like a couple of percentage points less than what it was before the crisis, and in part this seems to be due to investment being rather lower than what it was before the crisis. And this is not exactly totally well-understood as to why investment is less in much of the rest of East Asia, especially in the middle countries, but part of it could be due to the fact that there was a tremendous advancement boom before the crisis, so maybe there is still some excess capacity that's left over.

And also, there may be questions when we look at surveys of firms, we also find firms in East Asia talking about uncertainty, partly to do with macro instability, particularly to do with policy uncertainty.

So, there is an agenda, we think, in terms of improving the investment climate in East Asia, but this is simply due to creating a more certain policy environment at the same time addressing other possible flaws in the investment climate, reducing unnecessary costs of red tape, focusing on strengthening infrastructure. Many countries refer to, for example, lack of adequate skilled workers or trained workers, so there is an agenda for improving education and workforce training, et cetera.

So, a number of areas there where countries need to focus on improving investment climate as a key to strengthening their long-run growth performance.

Second big challenge of the middle-income trap we refer to is what we call the challenge of maintaining social cohesion. What we notice is,, although poverty has continued to fall, at the same time inequality has been rising in several East Asian economies, in some cases, quite, quite sharply. For example, inequality has been rising in China, in Indonesia, in Philippines, also in Vietnam, and some other economies, and this matters because sharp inequality in the long run could hamper growth, in part, by creating instability, tension, social tension, and so on.

It's a difficult question to grapple because some of the causes of this rising inequality are precisely to do with the same factors that are stimulating high growth; so, for example, adoption of new technology is tending to increase inequality because new technology is increasing demand for skilled labor, and therefore the wage gap between skilled and unskilled labor has been going up.
Similarly, for example, in China, urban areas have been growing much faster than rural areas because urban areas are much more integrated into the global economy, receive much more foreign direct investment, et cetera, whereas rural areas have been lagging in growth.

So, the question is, how can countries tackle these difficult questions without reducing economic growth, and there are some ideas also that countries need to grapple with on this front, for example, strengthening education? If globalization is increasing, if technology is increasing skilled workers, then we should be training more skilled workers so we need to focus on secondary education, tertiary education, on improving workforce training, et cetera.

We also need to think in terms of improving access to credit for poor people, for small businesses is that poor people have a--are more able to set up their own businesses, are able to split the new opportunities that are being created. We need to think in terms of reducing impediments to the flow of workers from the country side to the city. That's one of the major ways in which people's income has been improving is by moving to better opportunities in the city.

Lastly, we could also mention improving social protection systems in East Asia, for example, in terms of things like unemployment insurance, health insurance, pension insurance, schemes and so on.

The last point is actually going to be addressed as part of the answer to another question, so I will come back to that later, and that has to do with tackling, reducing vulnerability to financial crises. This is the third big challenge that we think the region faces. There are a number of questions dealing with that, so I can either deal with that now or come back to that a little bit later on.

As is well known China has been very successful in attracting very large volumes of FDI, which have played an important role in its economic development strategy. Starting from the early 1990s, net FDI inflows to China jumped to between $20-40 billion dollars a year. In the last few years they have increased to $50-70 billion dollars. Relative to the size of the economy, FDI inflows were as high as 5-6% of GDP in the mid 1990s, but as China’s economy has got much bigger, this proportion has come down towards 3% of GDP.

FDI has been particularly important in the manufacturing sector and especially in stimulating the rapid growth of China’s exports. Here MNCs have been instrumental not only in providing investment capital, but more perhaps importantly in providing access to markets and market channels in the developed world, as well as in facilitating the flow of new technologies and ideas into China. Now FDI is increasingly moving into the services sector and this is likely to provide a further boost to China’s growth prospects.

In the long run increasing productivity is the central force driving improvements in living standards. Adoption of new technologies is one of the major ways in which productivity growth occurs. East Asia has been very good at fostering adoption of new technology by its firms.

At a basic level good macro policies, property rights and other factors have ensured that firms have an incentive to make investments in new technology. Secondly, outward oriented policies mean that East Asian firms have had a high level of engagement with firms from advanced countries which are the carriers and developers of most new technology. This engagement has helped East Asian firm to absorb new ideas and technologies. Sometimes this engagement has happened when East Asian firms act as suppliers to MNCs, as part of their global production networks, sometimes as recipients of foreign direct investment by these foreign MNCs. Thirdly, a subset of East Asian countries have now also developed strong domestic R&D and innovation capabilities, e,g, Korea, Taiwan (China), Singapore and increasingly China.

The latter parts of this question were addressed in earlier answers. On the last part, intra-regional trade has indeed been growing very rapidly. But it is interesting that much of this growth has occurred before or without the existence of Regional Trading Arrangements (RTAs). i.e. it has been market led, occurring because it has made business sense to companies. East Asia has also been been one of the major regions benefiting from multilateral global trade liberalization under the GATT and now the WTO.

Now there is also much interest in forming RTAs. The impact of RTAs will depend a lot on how well they are designed. On the positive side RTAs can provide a good forum for regional cooperation especially in tackling services liberalization, greater harmonization of national regulations and the tackling of various "behind-the-border" issues that might otherwise hamper the continued expansion of intra-regional business. For example, they can help facilitate greater consistency in rules governing treatment of Foreign Direct Investment, Intellectual Property Rights, competition policy and development of capital markets. At the same time RTAs need to avoid increasing discrimination against non-members, to avoid so called trade diversion effects. They also need to avoid creating complex and inconsistent rules of origin for the RTA, which can increase the costs of doing business for firms, possibly more than offsetting the expected benefits of the RTA.

Cambodia's economy is doing very well of late, with growth exceeding 10% for 3 years running. This is underpinned by 4 pillars – garment exports, tourism, construction and agriculture. Poverty is also falling.

There is significant progress on economic reforms in anumber of areas, for example on public sector financial management, and reducing import restrictions There is also some progress on banking reform. But much also remains to be done especially on the social side, for example on education and health.

There are a number of questions that have been asked about whether East Asia is vulnerable to or on the way to another financial crisis, and I would really have to disagree in some respects with that perception, in that the conditions right now are in many respects quite different from what they were before the 1997 crisis. At that time, you remember that one of the chief vulnerabilities was that firms and banks had taken on excessive amounts of short-term foreign debt, especially relative to the foreign exchange reserves that the countries had available to them, and financial institutions in many of these countries were also very poorly regulated; and so, for example, banks and other financial institutions, after borrowing heavily from abroad, increased lending very rapidly, often into quite speculative sorts of ventures, and then when the time came for foreign investors suddenly changed their minds and decided to pull their money out, then that provoked a very severe economic crisis in several of these countries.

Now, if you look at the situation today, in some important respects it's quite different. One is that most of these economies over the last 10 years have been accumulating very, very large foreign exchange reserves. For East Asia as a whole, the level of foreign exchange reserves now is around $2 trillion, and China alone it is $1 trillion.

By most estimates, this level of foreign exchange reserves is actually much higher than what what those countries need to maintain as a buffer or security blanket against the threat of future financial crises of the type that occurred in 1997; in other words, of the type that occurred as a result of a sudden stop in capital inflows and sudden outflows of capital.

I mean, in general, these reserves are now several times higher than the level of short-term debt that many of these economies have, so that's one point.
The other point is that countries have been putting in a lot of effort to strengthen the quality of public supervision and regulation of the financial sector. And this, again, is a work in progress. There are many areass where more work needs to be done in terms of strengthening supervision and regulation, but there has been a lost progress compared to where things were in 1997. So, that is also a factor which should help these countries be more robust to the threat of new financial crises.

And lastly, we could also note that the financial sector has become much more diversified also. Traditionally, East Asia, like many developing regions, has relied very heavily on the banking sector for its financial services and financial intermediation. Now, in the last 10 year, there has also been growth in other kinds of capital markets; for example, in the equity markets, in bond markets, et cetera. That experience suggests that a more diversified financial sector also tends to be more robust in terms of sets of volatility and financial crises, and it's also better for long-run economic growth; that again is a work in progress.

Lot more needs to be done, for example, in terms of developing an institutional investor base to support these capital markets. There was a question amongst the questions about the role of insurance sector. The insurance sector, again, is a factor that needs to be further developed in these regions and so on. But again, the trend seems to be in the right direction.

Now, does this mean that the economies are invulnerable to financial crises? No. That's not true. In fact, probably no economy is invulnerable to the threat of financial crisis. There are certain areas we could point to where policy makers need to pay a lot of attention and care to avoid the buildup of risks.

One thing that is partly related to the fact, we noted that foreign reserves are very high, and, in fact, this is in large part due to the fact that countries have been running very large current account surpluses, and several of them nowadays are also enjoys large capital inflows. And one side effect of this is that it creates pressure for rapid expansion of domestic liquidity, domestic credit expansion, and if that is not properly managed, that kind of liquidity or expansion could again lead to some of the phenomena that we saw before the financial crisis, for example, overheating of domestic economies, large increases in asset prices, and the formation of asset price doubles, imprudent lending, et cetera, which could at the end of the day then lead to gene the emergence of bad debt or nonperforming loans.

So, economies need to watch those trends carefully to prevent the buildup of similar kinds of vulnerabilities. One of the policy measures that they are increasingly taking, which could be helpful, is they are moving towards greater exchange rate flexibility, and this has been happening in many of these question economies over the last several year, ask this is helpful in the sense that over time exchange rate flexibility could address the underlying problem of very large current account surpluses, could help address that problem and could therefore diminish some of this pressure for program buildup of liquidity in the domestic economy, so, that's one area where policy makers need to keep a careful watch and to prevent the buildup of vulnerabilities.

The parts of this question on China have hopefully been addressed in other answers. On the last part, poverty falls when the incomes of the poor increase, so that for example, a person who had income of less than $1 a day now has income more than $1 a day. However declines in poverty can occur at the same time as rising inequality, because the incomes of higher income groups are rising even faster than those of the poor.

This report moves beyond earlier work, which focuses primarily on human development, and examines why, even though we may have better education, job training and other skills, a large fraction of the indigenous people in Latin America are not able to convert these skills into higher earnings and increase their standard of living in relation to the non-indigenous people.

Our study highlights that low income and the low resources are mutually reinforcing. Low levels of education prevent entry into higher paying jobs, while lack of credit or access to farm machinery is a road block to increasing agricultural productivity.

As a result of their historical exclusion, indigenous people continue to have low levels of human capital, limited access, productive land, basic services and financial markets, and poor infrastructure.

We thank Eduardo for a very good question. We can only answer it partially, for some of the policy issues that we are bringing to the surface here can provide partial solution to the problem.

Our report, in general, finds that the indigenous people work mostly in just a few occupations, living in rural and remote areas, and suffer from lack of access to well paying jobs in the mainstream labor market. The report looks in general at what types of jobs and income and sources of income the indigenous people earn, and we find that in the rural areas, indigenous people are more likely to work as unskilled agricultural laborers than the non-indigenous people.

In the urban areas, they are more likely to have informal jobs that lack security, access to social benefits, healthcare, and unemployment insurance. In Guatemala, for example, less than 50 percent of urban indigenous work for wages compared to 65 percent for the non-indigenous people.

Also, the distribution of land is unequal. The plots of land owned by indigenous people can be anything from twice as small as non-indigenous land holdings in Peru to nearly eight times smaller in Ecuador.

In addition, access to financial services is very limited. Very few indigenous households have access to formal or informal credit. For example, in rural Ecuador, indigenous business owners are often deterred from seeking a loan due to high interest rates. Two more factors that can be improved upon are access to infrastructure and basic services, access to running water and can help to increase productivity, and diversification of income generating activities. In rural Mexico, for example, lack of access to roads reduces the value of land.

And finally, social networks can be either constraints to growth or engines for growth. The indigenous people have strong social ties that are important for their survival and prosperity. However, upon occasion, these networks do not seem to help them into other types of employment that pay better. Networks seem to work mainly perpetuating employment in agriculture and self-employment.

Most countries in Latin America, and certainly the five countries we studied, have bilingual or intercultural education programs, but education quality throughout the region is poor, particularly for poor and indigenous people, and that includes the bilingual schools that indigenous people attend.

The bilingual programs are often improperly designed, lacking teachers who speak the native language, sometimes offered to children who don't speak an indigenous language, and often without proper textbooks in the mother tongue.

The bilingual schools that work, on the other hand, have teachers who speak the native language, are well equipped with bilingual materials, teach the national curriculum but use materials developed by the local community. And when the teaching of indigenous history is part of a national curriculum, it often becomes inclusive, as in the indigenous culture in New Zealand. Latin America's schools produce low reading and math skills as measured by national and international assessments and indigenous people lag in all measures.

Another example of a successful program that is not differentiated but reaches indigenous people is the successful conditional cash transfer program, Oportunidades, known as Progresa, in Mexico, which provides for investments in health, education, and nutrition, and has been shown to raise improve outcomes in health, education, and nutrition particularly for indigenous people without being targeted at indigenous peoples.

However, while this raises the number of years of schooling, but more investment needs to go into improving the quality of education that all people in Latin America receive, but particularly indigenous people.

Yes, in general, we agree with the point that Juan Pablo is raising, and, in fact, in our synthesis report, we have a number of examples where these particular efforts are being acknowledged, efforts that increase what we call the agency capacity of indigenous communities. For example, in box one of our report, we make detailed reference to the work of others like Andrew Babbington, and also a number of World Bank programs that began investing in initiatives to provide technical assistance and capacity-strengthening programs for indigenous organizations. Such projects include the PRODEPINE project in Ecuador, which is basically aimed at mobilizing pro-poor social capital and direct resources to indigenous communities so that they can manage these resources in accordance with their own visions and philosophy.

Another type of program that we make reference to is the Foundation of Farmers Organization of Salinas (FUNORSAL), which is basically an organization that creates sustainable rural livelihoods for indigenous households.

So, in general, the point the report acknowledges these very worthwhile efforts. Maybe they're not summarized in the executive summary, but we do think that there is scope for success in these types of efforts in helping indigenous communities.

The indigenous people in Latin America earn considerably less than nonindigenous people in all countries. On average, indigenous people earn about 50 percent of what non-indigenous people earn. When we analyze the earnings differential and try to estimate the level of discrimination, we find that one-third to one half is not explained by productive characteristics; that is, if indigenous people had the same levels of education, experience as non-indigenous people, they would still earn one-third to one-half less than non-indigenous people.

Part of the reason for the earnings differential is the lower level of education. Indigenous people have two to three years' less education than non-indigenous people. For example, in Bolivia, non-indigenous people have almost 10 years schooling. Adults in Bolivia have almost 10 years of schooling while indigenous people have only six. In Guatemala, non-indigenous people have six years of schooling while indigenous people have two-and-a-half years of schooling.

Also, for every year of schooling, indigenous people earn considerably less; in other words, indigenous people have a lower return to their schooling investment.

In Ecuador, indigenous people earn less than non-indigenous people at higher level of schooling or at the lower levels of schooling the people have a higher rate of return, and this relationship is reversed at higher levels of schooling. So, years of schooling are not equivalent between indigenous and non-indigenous people. The quality of indigenous people's schooling is lower, and this is reflected in Mexico in the fact that older workers have a bigger differential in earnings than younger worker, so the longer they're on the job, the more apparent the quality differences become.

In national, regional and international standardized tests, indigenous people score lower than non-indigenous people. For example, the gap in math scores in Peru is about 27 percent, so indigenous people scored 27 percent lower than non-indigenous people. So, while there is some evidence of discrimination against indigenous people, most of these salary differentials can be explained by productive characteristics like education, experience, and particularly the quality of education. So, there is a large role for policy and public spending to improve access to education and the quality of education that indigenous people receive, which will help them improve their labor market performance and reduce the wage disparity over time.

Our report discusses, to some extent, issues of land, especially the quality of land, and we have some evidence about indigenous people and their access to land. These people have access to less land than non-indigenous people, and the quality of that land productivity is lower than the productivity of non-indigenous people's land.

We have some specific reference to land rights and differing situation across countries in Latin American region, which also discusses some of the programs designed to demarcate and title indigenous lands in Latin America.

But, our report focuses a bit more on other assets, and in terms of legislation or issues related to indigenous people's rights, we argue that the Millennium Development Goals (MDGs) will coincide with the Second International Decade of the World’s Indigenous Peoples, which was declared by the United Nations in 2006, so both the U.N. Decade of Indigenous Peoples and the Millennium Development Goals will end in 2015. This gives an opportunity for indigenous people to link the decade to the MDGs and to argue for disaggregated data on indigenous people's indicator, in terms of education, and health in order to highlight the difficulty of reaching the goals without specific attention to indigenous people, and also to use the decade and the MDGs to push for a commitment to indigenous peoples and to argue for specific targeted reductions in things like illness rates or to increase school completion.

The World Bank just announced the approval of an $80 million project to improve education quality and to expand access to secondary schools in Guatemala. Guatemala has made significant improvements in primary education coverage in the last decade, but progress in secondary education has not followed at the same pace. This project, the Education Quality in Secondary Education Project, will improve access to quality secondary schooling for low-income and indigenous students by supporting primary education completion and quality, expansion and access and improvements in quality for the early years of secondary, and school-based management focused on school quality. The program supports overaged students to complete their primary schooling, and increases quality and access to secondary education by supporting, among other things, a flexible school calendar, which would be particularly useful to indigenous people, and would strengthen the demand for education through scholarships and subsidies for low-income students.

This would be one example of, a very recent example, of how the World Bank is supporting social change in Guatemala post-1996 Peace Accords.

The report on indigenous people in Latin America is follow-up to a study that was published last year which was an update to a study we did over 10 years ago on the situation of indigenous people in Latin America. Much less has been written at least in the World Bank about indigenous peoples, ethnic minorities and other groups in other parts of the world. We know that indigenous tribal and ethnic minorities are concentrated in south and Southeast Asia, but much less has been done in those areas. We are hoping to do more work on indigenous peoples and ethnic minorities around the world hoping to start with studies in Africa and East Asia, and we plan have a new report that looks at these issues from a global perspective perhaps next year.

The World Bank has many programs for assisting governments finance their development agendas. For the specific case of indigenous people, in addition to projects that we finance with governments, we have a special grant facility for indigenous peoples. The program works in partnership with indigenous peoples' leaders worldwide and supports sustainable and culturally appropriate development projects planned and implemented by and for indigenous peoples. The fund has been operating since 2003, and will be inviting applications for small grants in the very near future.

The Web site is at "www.worldbank.org/indigenous," and it's called the Grants Facility for Indigenous Peoples.

Before I jump into addressing the questions, I'd like to begin by thanking everyone who took the time to send in a query. I'm happy to be here this morning, and look forward to this Speak Out. I think this is a great way to demystify INT and the Bank's anti-corruption work.

I joined the Bank at the request of former President Jim Wolfensohn, who asked me to be a Counselor to the President. I accepted the President’s request because I know first-hand, from my work with the UN and the time I spent in the developing world – including a great deal of time in the beginning of my career in Africa as well as a fair amount of time in the Middle East – that an organization like the Bank can make a big difference.

Having been on dozens of delegations for my own government, I also learned that the key to making that difference is partnership. In the past, that’s something the Bank wasn’t as good at as we could have been, but I think we’re better than ever – and we keep working on it.

Rather than saying the Bank is supporting developing countries, I like to think we’re helping those countries help themselves. The countries are in the drivers’ seat.

As for conditionalities, that’s something that the Bank and its partners are always trying to improve. It’s not my area, but I do think – from where I sit – that conditions designed to make sure the money goes where it belongs are a good thing.

We just issued our annual Integrity report. What it says is that while we have a pretty good understanding of how Bank-financed projects can be vulnerable to corruption, we have a lot less knowledge of the frequency and scope of the problem. So we can’t give a percentage.

But one big finding from our investigations is that those schemes that the corrupt actors come up with are really quite similar across the world – in any country, anywhere. Corruption is corruption. This finding is helping us to design common risk mitigations Bank-wide.

The Bank has three approaches to dealing with corruption – at the country level, working on projects and programs with borrowers; at the project level, addressing risks in our loans and doing investigations such as those my department does; and at the global partnership level, including with the private sector, civil society and others. But let’s be clear: corruption is not a developing country problem alone. President Wolfowitz says again and again that any bribe involves two parties – a taker and a giver – and the giver is often from a rich country.

But education about the problem on a global level is important. That’s why I’m here today.

The Bank is working to improve global equity, but I think we’re all a long way from equal opportunity for all. It’s a good goal, though.

My department conducts investigations based primarily on allegations we receive. We get many of our project-related allegations from Bank staff – more than any other source. Our methodology of investigation is benchmarked against a number of international and bilateral units conducting similar work – like the other MDBs, and so on.

How we specifically conduct a single investigation is based on the nature of the allegation – but let’s remember: these aren’t criminal investigations, they’re administrative. We don’t have law enforcement powers here in INT. We just conduct fact-finding, through a combination of document review, witness interviews, forensic accounting, as well as other standard investigative tools. We then turn the facts we find over to others for their decisions.

Your suggestions seem to look toward changing the way the Bank does business, and I can’t begin to address that – it’s above my pay grade.

The Bank is currently developing a strategy for addressing corruption and governance on a global level – I’ll ask the person who is typing this to put in a link to the draft strategy. I think that will help answer the broader question of what the Bank does.

As for "checking" the corruption of specific ministers – that’s outside our mandate. If we do receive allegations regarding a minister involved in one of our Bank projects, we will refer that information to the Government for criminal investigation – again, our investigations aren’t law enforcement, they’re administrative.

I’ve heard that question before – glad you asked. I entered the Bank as Counselor to the President and was moved laterally over to INT. It wasn’t a promotion.

As per INT’s board-approved Terms of Reference, the head of the department reports directly to the President – just like a Counselor does. Since the President isn’t staff, INT has no 'jurisdiction,' for lack of a better term, over him. I'm an ethics lawyer, and have done quite a bit of work on Conflicts of Interest – my titles pose no such conflict.

I should add, incidentally, that being Counselor to the President – the title, I mean – is actually important externally, in this line of work. When you’re meeting with Ministers and cabinet-level officials, you carry a bit more weight if your title shows you have the ear of the President. This is a hierarchical world (and Bank) – access matters, especially for women.

We have several checks in place. Last year, soon after I arrived here, I asked if the entire department – from Administrative staff to senior management – would consider voluntarily filing Financial Disclosures, which are reviewed by an outside accounting firm for Conflicts of Interest and other 'red flags.' More than 92% of the department voluntarily complied, which I found very reassuring. This year, President Wolfowitz is making such disclosures mandatory for all of INT, but I'm proud of the fact that we did so voluntarily last year.

Second, we have a quarterly briefing to the Audit Committee of the Board – we have a dotted-line reporting to the shareholders themselves.

Another measure we've taken in the past year or so is to require everyone in INT to sign a strict confidentiality agreement, which calls for termination from the Bank if anyone discloses unauthorized information outside the institution. We're trying to hold ourselves to a higher standard.

Finally, I have to say that we only hire the most dedicated professionals – people who have spent their entire careers in the front-lines in the fight against corruption. We have seasoned fraud investigators, white-collar crime prosecutors, criminologists, labor and ethics lawyers, and forensic accountants, all of whom have made it their life's work to take on corruption. It's a great department – I'm proud to be a part of it.

When we find that a supplier has engaged in corruption in a project, we take actions to debar them – which means to make sure they can’t get any more contracts for a while. We also publicly debar – we list their names on our website. ‘Naming and shaming’ is a huge deterrent.

The Bank has sanctioned 338 firms and individuals – and let me tell you, the firms put up a fight, because they know that losing that business, combined with having your name on a list saying, “this company was corrupt,” is a very hard thing to swallow. But it’s the right thing for the Bank to do. You’re absolutely right: prevention is much better than finding out afterwards that money went into someone’s pocket.

We’re often asked why we don’t publicly name Bank staff who are terminated for fraud and corruption as well. The Bank’s rules don’t allow such disclosures….

My department also deals with allegations involving Bank staff. If we find staff have engaged in wrongdoing through an investigation, we turn our findings over to our Vice President of Human Resources for a decision. Over the past two years, based on our investigations, the VP of HR has terminated or, in cases where the employee has left, barred from rehire 22 staff and disciplined 11 others for fraud and corruption.
My department is also responsible for investigating other types of misconduct, such as harassment or discrimination. I should note, though, that the number of serious allegations involving Bank staff amount to less than 1% of our total workforce at any given time.

Well, there were rumors that, in the past, INT's reports weren't taken as seriously as they should have been. I can tell you that President Wolfowitz has made it a priority.

It's still a struggle, though, to be honest. There are still a small number who don't value the work of this department. But I think we’re making progress.

The World Bank estimates that around $1 trillion a year is paid in bribes. At one point, Transparency International estimated that at least $400 billion a year was lost to bribery and corruption, in public procurement alone. But, as far as Bank projects and how susceptible they have been, we don't have a figure – largely because INT only responds to allegations we receive, which is only a sub-set of the overall picture of corruption. We don’t go hunting around the world for corruption – we get enough work through allegations from staff alone.

Corruption is largely the same all over the world, I’m sorry to say. As INT's annual report noted this year, we see collusion, kickbacks and bribes, procurement fraud, project asset misuse, and misrepresentation of qualifications in bid submissions.

There's a great quote from Adam Smith in "The Wealth of Nations" that my department is fond of citing: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

Any time we believe criminal wrongdoing has taken place, we make a referral to the relevant government. I don't have an exact figure as to the number of referrals we’ve made, but I can tell you that the response varies. Some governments take strong action, some no action at all. But I want to be clear: the lack of political will is not a developing country problem alone. There are plenty of rich countries we've made referrals to where there's been zero action.

As far as results, we've seen 26 criminal convictions around the world as a result of INT referrals. That may not sound like a lot, but it's a young department, and we're seeing some encouraging trends emerging.

The Bank's Sanctions Committee recommended that Lahmeyer's sanction can only be reduced if they take some very serious steps to come into compliance and disclose past wrongdoings. But I think you underestimate the value of contracts that a firm can be awarded in four years – for a major firm, it's in the tens of millions of dollars. And the reputational risk of being blacklisted is rather high, too – particularly in the post-Enron, post-OECD anti-bribery convention. Companies up for Sanctions Hearings at the Bank pay top dollar for K Street or New York white-collar law firms – it means a lot to them.

Well, project implementation is not my area,