World Bank President Robert Zoellick today said the global economy will recover slowly from its worst recession since World War II and the Washington-based lender may require a capital increase to meet developing countries' financing needs.
"We've broken the fall of the financial crisis," Mr Zoellick said today at a news conference in Istanbul. Still, 2009 "will continue to be a difficult year" and "you'll have a slow recovery," he said.
The World Bank needs a capital increase of as much as $11.1 billion, according to a report prepared by the bank's staff.
Mr Zoellick said on September 29th he hoped that the bank's shareholders, who will discuss a possible plan at their annual meeting in Istanbul next week, could make a decision on additional resources by April.
The increase would range between $2.8 billion and $8.7 billion for the International Bank for Reconstruction and Development (IBRD), which lends to countries, and between $1.8 billion and $2.4 billion for the International Financial, which lends to companies.
The total amount needed will depend on whether the recession lingers and the World Bank raises fees.
"Fortunately, we came into this crisis very well capitalised," Mr Zoellick said today, adding that IBRD lending was approximately $33 billion in the fiscal year ended June 30th. That was about three times as much as the previous year, and the current fiscal year is likely to top $40 billion," he said.
The staff report estimates that the IBRD's commitments will likely reach $136 billion in the period from fiscal 2009 to 2012. Mr Zoellick said the IFC "also faces a capital constraint".
Overall, "that leaves the potential for a general capital increase," he said.
Also speaking in Istanbul, the head of the International Monetary Fund today called for a further increase in IMF resources so it could play a "credible" global lender of last resort role.
IMF managing director Dominique Strauss-Kahn noted that a $500 billion increase in IMF funding agreed upon in April would require fresh approval every five years and could be activated only in times of crisis.
He said that could create "uncertainty" about whether countries could always count on turning to the IMF in times of need.
"This uncertainty means that the IMF cannot yet serve as a credible global lender of last resort," Mr Strauss-Kahn said in a speech ahead of weekend meetings of the IMF and World Bank.
"And because providing global financial insurance is so critical for crisis resolution and crisis prevention, the resource base of the IMF should be increased further."
Mr Strauss-Kahn argued that bolstering the IMF's lender of last role would discourage nations from relying on exports for growth in order to build up large currency reserves, helping pave the way for a more-balanced global economy.
"The absence of adequate insurance to guard against sudden stops in private capital flows has played a major role" in the growth of reserves, he said.
Agencies