October 25, 2024 • 59 mins
Jon Hartley and David Malpass discuss David’s career, and his service in government, including his time as president of the World Bank Group. They also discuss the changing role of China in international finance as well as the IMF and World Bank responses to the COVID-19 pandemic, the global distribution of COVID-19 vaccines, COVID-19 sovereign debt relief (Debt Service Suspension Initiative or DSSI)),and how the early 2020s inflation has impacted developing countries, economic growth, and climate policy.
Recorded on September 20, 2024.
ABOUT THE SPEAKERS:
David Malpass served as the 13th president of the World Bank Group. Prior to his appointment at the World Bank, David served as Undersecretary of the US Treasury for international affairs during the Trump administration. Before joining the US Treasury, David founded and led a macroeconomics research firm based in New York City. He has also served as chief economist of Bear Stearns, where conducted financial analyses of countries around the world. Earlier in his career, David served in various roles at the Treasury during the Reagan and George H.W. Bush administrations as well as in the US Senate working on the Budget Committee and Joint Economic Committee.
Jon Hartley is a Research Assistant at the Hoover Institution and an economics PhD Candidate at Stanford University, where he specializes in finance, labor economics, and macroeconomics. He is also currently a Research Fellow at the Foundation for Research on Equal Opportunity (FREOPP) and a Senior Fellow at the Macdonald-Laurier Institute. Jon is also a member of the Canadian Group of Economists, and serves as chair of the Economic Club of Miami.
Jon has previously worked at Goldman Sachs Asset Management as well as in various policy roles at the World Bank, IMF, Committee on Capital Markets Regulation, US Congress Joint Economic Committee, the Federal Reserve Bank of New York, the Federal Reserve Bank of Chicago, and the Bank of Canada.
Jon has also been a regular economics contributor for National Review Online, Forbes, and The Huffington Post and has contributed to The Wall Street Journal, The New York Times, USA Today, Globe and Mail, National Post, and Toronto Star among other outlets. Jon has also appeared on
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
>> David Malpass (00:00):
China is very involved in lending its own money,
much bigger than any World Bank amountsinto their Belt and Road initiative.
And a challenge from that is try tostop some of the practices that they do.
One is a non-disclosureclauses in the contracts.
What this means is that the clauseswithin the contracts are unfair to
(00:22):
the people of the country.
Also the taking of collateralby China as it lends a country.
So for example, in Ecuador and Angola,
China had contracts which allowed themto take physical control of the oil.
That gives them an advantage and alsocontrol within the country's framework.
(00:46):
[MUSIC]
>> Jon Hartley (00:55):
This is the Capitalism and Freedom in the 21st Century Podcast,
an official podcast for the HooverInstitution Economic Policy Working Group
where we talk about economics,markets, and public policy.
I'm Jon Hartley, your host.
Today, my guest is David Malpass.
David served as the 13thpresident of the World Bank Group.
Prior to his appointment at the WorldBank, David served as U.S Undersecretary
(01:16):
of the Treasury for International Affairsduring the Trump administration.
Before joining Treasury, David founded and
led a macroeconomic researchfirm based in New York City.
Before that, he served asChief Economist at Bear Stearns and
conducted financial analysesof countries around the world.
Earlier in his career, David servedvarious roles at treasury as well during
(01:37):
the Reagan and Georgia H.W.Bush administrations.
He also served in the U.S.
senate, working on the Senate BudgetCommittee and Joint Economic Committee.
Thank you so much forjoining us today, David.
>> David Malpass (01:49):
Hi, Jon.
>> Jon Hartley (01:50):
So I want to get to your beginnings.
David, where did you grow up and how didyou first get interested in economics and
finance?
>> David Malpass (02:00):
I grew up in Northern Michigan.
I was born in Petoskey and then raisedin East Jordan, an even smaller town.
Economics, I think, came to me more frommy interest in the way the world works.
And I was a physics major in college.
And before that I wasinterested in geography,
(02:21):
in languages, and how things work.
And that leads you right into economics.
Why do people move money the way they do?
What are the policy tools?
And so that was my interest.
>> Jon Hartley (02:33):
That's fascinating, I wanna talk a little bit about.
You've had an amazing career in boththe public sector and private sector.
And you served in a variety ofgovernment roles as Treasury and
in Congress before becomingthe World Bank president.
>> David Malpass (02:48):
State Department, that was left out.
So that was two or three years of my life.
So, yeah, two years.
>> Jon Hartley (02:57):
And you've also done a lot in the private sector as well.
And many people may not realize this, butthere's a whole host of suspicious people
who served as chief economists atBear Stearns in addition to yourself,
like Carmen Reinhardt,Larry Kudlow, I'm curious,
how has your time in the privatesector informed your public service?
(03:18):
I think it's rare that youfind people that have so
much experience in economics in boththe private sector and the public sector.
>> David Malpass (03:26):
Private sector is really important.
People, for one, have to compete.
And so that was,that was good for my economics.
I was regularly ranked near the topin the Institutional Investor poll,
so that that was reinforcing of someof the ways I was doing things.
(03:48):
I wanted people often tolook at the actual raw data.
So a lot of times economistswork in terms of rate of change,
when what you need to look atis the actual levels of data.
So I learned that and more importantly,I learned lots about financial markets.
(04:11):
We forget the crossoverbetween economics and
markets, but it's tight.
And so as you think aboutwhichever kind of market,
whether it's equity markets orbond markets or
interest rate markets andfutures or currency markets,
(04:32):
they are directly crossing over betweeneconomics and finance and real world.
So I saw that in muchdetail in those years.
That was 24 years on Wall Street.
>> Jon Hartley (04:47):
And it's amazing, and what an amazing career.
Speaking of someone that's worked inboth private sector at Goldman in
various policy roles,
I think working in private sectorreally gives you an added perspective.
And certainly I think a lot of dataincreasingly is being generated in
(05:08):
the private sector as well.
Even those in the public sectoruse Bloomberg Terminals.
Jay Powell, the Chairman of the Fed,
has a Bloomberg Terminal thatcomes from the private sector.
Often we're looking at bluechip forecasts that are being
produced by an aggregation ofchief economist forecasts in
(05:28):
the types of roles that youserved in the private sector.
So I think there's a lot ofinterplay between private sector and
public sector that maybe isn'tvery much appreciated, but
you've been huge in both of those places.
I want to get more into yourtenure at the World Bank.
So the World bank is generally focusedon extreme poverty, whereas the IMF
(05:51):
is more focused on lending to distressedcountries, doing conditional lending.
For the listeners out there, can youexplain a little bit more about what
the World Bank president role entails?
I know that part of your role is to guide.
The board of about 25 executive directorsrepresent around 180 countries.
And voting at the World Bank isdetermined by capital contributions.
(06:11):
It's not like UN which is one country,one vote.
The voting power is based offof the capital contributions or
how much each countryinvests in the World Bank.
And typically, the World Bank, you'revoting on projects that come up like
building a dam ora power plant in a very poor country.
As president World Bank,how do you oversee this process and
(06:33):
what does that role entail?
>> David Malpass (06:35):
Thanks, and
you're right that the World Bankis very interested in poverty.
But remember its roots.
They were in the reconstruction ofcountries that are now advanced economies.
The first loan was to France andone of the early loans was to Luxembourg.
(06:55):
And so as we think about the World bank,there's these
five different branches I waspresident of each one that
do different things withinthe global development process.
In addition to the grants and loans forextreme poverty to the poorest
(07:16):
75 countries, that's the IDA partof the World Bank, there's IBRD,
the International Bank forReconstruction and Development,
which makes floating rate loans togovernments that are creditworthy.
And so for example,Brazil borrows from the World Bank.
(07:40):
And so those loans are like the IMF.
They're trying to get structuralreforms within the countries.
So I don't wanna submerge that.
As the World Bank hasevolved over the years,
Years it's gone from that role,the reconstruction role,
(08:05):
toward an increasing portionthat's poverty related.
But then also there'sthe humanitarian assistance side.
So when there's an earthquake,
the World Bank is often the onethat does the damage assessment.
This could be Turkey, let's say,when there was a horrendous earthquake,
(08:26):
the damage assessment.
And then the methodologies that could
bring assistance into thatparticular region of a country.
Other parts of the World Bank thatI'll just mention very briefly is
the International Finance Corporation.
Which makes loans to private sectorcompanies in developing countries that for
(08:48):
example is operating in Ukrainein the private sector now.
Then there's MIGA, the MultilateralInvestment Guarantee Agency, it is meant
to provide insurance against certaintypes of risk, like political risk.
And then a final part that isnot insignificant is ICSID,
(09:09):
the International Center forthe Dispute Settlement.
And, so that it goes toa part of the World Bank that
is from the beginning trying toimprove the rule of law in countries.
Recognizing that if youhave a better rule of law,
(09:30):
you're going to get moreinvestment into the countries.
So ICSID helps investors settle disputeswith countries and that with in the theory
that that is helping increase the amountof investment into those countries.
So it's a broad based organizationthat works closely with the IMF and
(09:50):
other parts of the international system.
>> Jon Hartley (09:55):
It's fascinating,
I worked in my own personalcapacity at World Bank and the IMF.
And both these institutions just thispast summer, the so called Bretton
woods institutions celebrate their80th anniversary this past summer.
And John Maynard Keynes, Harry DexterWhite were a big part of that.
(10:17):
Harry Dexter White representingthe US later turned
out to be a secret communist and
John Maynard Keynesrepresented the United Kingdom.
And it turned out that I think thatthe White plan versus the Keynes plan had
somewhat more influence inthe construction of the World Bank and
(10:38):
the IMF.
And I think Keynes actually wantedlike a world currency, the bancor.
And so anyways,I think it's interesting that history and
how much I guess the World Bank,the IMF changed over the years.
Your point, the first loans were goingout to France in the post World War II
reconstruction period.
But part of what the World Bank andthe IMF were doing for
(11:01):
many years was managing the systemof fixed exchange rates.
The so called Bretton Woodssystem that lasted for
about really the first 20 years orso about their existence.
And when Nixon took the US offthe gold center when every.
Most countries were then shifting awayfrom this fixed exchange rate regime that
the World Bank and IMF were managing.
(11:22):
And since currencies generally floated andthe World Bank and
IMF has sort of pivoted towardconditional lending and
a bunch of the other sort ofrules that you mentioned.
I think it's also interestingthat the World Bank and
the IMF recall the Bretton Woodsinstitutions because they were
created at this conference thatwas in Bretton Woods in Hampshire.
(11:43):
You can actually go to this hotelwhere these meetings were happening.
You can actually go up there andstay there now and there's a gold room and
everything.
There's also a golf course that's nearbyas well outside of D.C that World Bank,
IMF employees can go.
It's calledthe Bretton Woods Golf Course and
I think there's also some sort ofa nuclear bunker under there, too.
(12:04):
But I wanna get into some of the biggestchallenges that I think you face and
really overcame.
I think in many respects, you're a hugely
consequential World Bank president.
And I wanna get into sort of eachof these topics that you really
helped to tackle and I think a reallymeaningful and effective way.
(12:29):
I wanna start with China,tell us more about the challenges with
confronting China and its continuedrole as an aid recipient country.
It was kind of well above whatthe average GDP per capita
that a World Bank aidrecipient would be at.
One of the sorts of things that you did,both as Undersecretary for
(12:49):
International Affairs at treasury.
As well as president of the World Bank,to shift this and
to shift China away from beingan aid recipient country.
There's a lot of critics out there thatsay maybe China's in this case was
borrowing basically at0% from the World bank.
And lending it out into a belt and
(13:10):
road initiative basically like a hedgefund very controversial at the time.
But I'm curious, what was yourrole in helping to change that?
>> David Malpass (13:22):
Let's step back a little bit and you were talking about the fixed
exchange rate system of the worldthat's important and the gold standard.
So in China's rise interms of per capita really
was launched in 1993 when theystabilized their currency.
(13:44):
And so that brought them moreengagement with the world system than
the Soviet Union had been able to achieve.
So if we look at the courseof China in those years
of the 90s, it was expanding its role.
And at the same time, then expanding itsshareholdings within the World Bank.
(14:07):
So where we stand today is it's the thirdlargest shareholder behind the U.S and
Japan.
It wants to be a bigger shareholder,so there's constant pressure for
it to expand its role.
With regard to lending to China,it's actually not a very important topic.
I know it gets a lot of attention,
(14:27):
but it's not very much money andit's very profitable for the World Bank.
So the way you describedit isn't quite right,
they borrow at a floatingexchange rate with a spread.
So, because China is creditworthy,
it's one of the borrowersthat helps pay for
(14:51):
World Bank salaries and so on.
And in the earlier years,China was a recipient of IDA as a,
one of the poorer developing countries.
And indeed it was a poor developingcountry in the 1970s and 80s,
remember under Mao, there were famines, itwas a horrific set of economic policies.
(15:17):
And so as we bring it forward to today,
China is repaying those oldloans with interest and
it ends up being a net cashflow positive to the bank.
I'm not trying to defend the lending,I would like to see it stop.
(15:37):
But it's something that Chinanegotiated very strenuously for
in the 2017 capital increase, and
that was agreed to withinthe Trump administration for
its lending to China to decline.
From a per capita standpoint,there are quite a few countries with
(16:01):
Higher per capita than Chinawho are lending from the bank.
So it was one of the agreementsin 2017 to have all
of those countries look foran exit from IBRD lending.
But as I said,that type of lending to the higher income
developing countries is actuallyhighly profitable for the World Bank.
(16:26):
And we're talking abouta billion dollars a year,
which is a tiny fraction of China'son lending to other countries.
So it's not really a factorin supporting China.
China are very eager to have the lendingfrom the World bank for symbolic reasons.
(16:50):
It's a connection to the world andalso for demonstration reasons.
So even President Xi,in talking with me in person
in my role as president oreven before I became president,
was eager to see somelending by the World Bank.
(17:12):
And what we agreed to was to have thatlending be primarily for marine plastic.
China is one of the major contributors tothe marine plastics problem in the world.
Through its rivers, they chop upplastic into little pieces and
it's dumped into the rivers.
(17:34):
And they were looking for assistance,
technical orientedassistance to reduce that in
the same way that was donewith sewage treatment.
So the World bank had beensuccessful in China in helping
them treat sewage sothat it didn't pollute the rivers.
(17:58):
And so even at the highest levelsof the Chinese government,
they talk about now being ableto swim in the Pearl river.
And they're proud of the cleanup thatwas done and they want to see that go.
So I don't want to go on.
There are bigger issues andchallenges with China and so
maybe shall we talk about that a little,John?
>> Jon Hartley (18:18):
Sure.
>> David Malpass (18:19):
So other challenges here,
China is very involved inlending its own money,
much bigger than any World bank amountsinto their Belt and Road initiative.
And a challenge from thatis the way it's done.
And I worked both at treasury and
then at the World Bank to try to stopsome of the practices that they do.
(18:43):
One is a non-disclosureclauses in the contracts.
So they say that once they've signedthe contract with the country,
the country can't discussit even with the IMF and
the World bank,much less in public discussions.
What this means is thatthe clauses within the contracts
are unfair to the people of the country.
(19:05):
So we tried to reduce that.
Also the taking of collateral byChina as it lends to a country.
So for example, in Ecuador andAngola, China had contracts
which allowed them to takephysical control of the oil.
And then that gives them an advantagewithin those countries and
(19:30):
also control withinthe country's framework.
So scaling that back was one of the goals.
These are really problematic becauseChina doesn't want to do that and
some private sectorlenders are doing that.
That became an issue in the Chad debtrestructuring because Glencore had
(19:52):
contracts that were collateralized thatwere very difficult then to reschedule.
And so Carmen Reinhardt who Ibrought in as chief economist at
the World Bank was very involved intrying to have more transparency and
disclosure of the types oflending that was being done.
(20:14):
And that includes the swap lines thatwere done by China's central bank.
That is a current issue in Argentina forexample,
where China makes a loan andthen gets priority within that.
So that's one set of issuesthat I've been frustrated
are not moving forward withinthe world within the world framework.
(20:39):
That a related set is the restructuring ofdebt for countries that have hit the wall.
That as interest rate, well, as the world
growth didn't pick up in the 2010s.
This was a time when the central bankswere all doing QE which they claimed was
(20:59):
stimulative.
But I wrote a lot about how it was notstimulative, it was actually distortive.
It channeled capital tothe richer countries and so
the poor countries were leftwith a shortage of capital and
that pushed them into debt crisisalong with their over borrowing.
(21:21):
Many of the poorer countriesfound themselves in very
difficult circumstanceseven prior to Covid.
One of the early things I did atthe World bank in 2019 was to commission
a report by the bank on the four wavesof debt or that this is the developing
country debt crisis that includedthe Latin debt crisis that I'd worked on.
(21:44):
So as we bring this forward,China has been
successful in avoidingthe write down of its debt
to some of these poorerdeveloping countries.
And that leaves a hugenegative cash flow for
the countries to creditors thatare much better off than the countries.
(22:11):
So that's a frustration andan important part of the relationship.
And then I was also goingto mention the relationship
of China with developingcountries in terms of
the control mechanismsthrough their contracting for
(22:32):
infrastructure andother types of assistance.
So these are all key partsof the relationship.
They remain problematic.
And if we think about, okay,what is the goal here?
I was very clear in the mission at theWorld Bank to have outcome outcomes for
(22:56):
people in developing countries improve.
So I wanted to have you could measurethat through an increase in the median
income for people,the median per capita income of countries.
And so as we pursue that thenthis type of contracting
is not useful in moving the world forward.
(23:20):
But what has happened onthe international stage is China's
approach being tolerated,accepted by the international system.
So this creates tension within therelationship between the world and China.
And it's been successful forChina in pursuing that approach.
>> Jon Hartley (23:46):
I mean, it's a very big topic, the geostrategic competition,
the BRIC countries attemptedto start their own
multilateral development banks,the BRICS Bank.
>> David Malpass (24:01):
Can I interrupt before we lose that thought so that people,
your viewers, understand this?
The multilateral developmentbanks is an expanding concept
within international finance.
It includes the World bank, butalso several other major multilateral
development banks, such asthe Inter American Development bank,
(24:23):
the Asian Development bank andseveral others.
It's not a finite category and it getssubstantial benefit within the world
financial system through what'scalled preferred creditor treatment.
And so China is aware of that andhas created two institutions,
the AIIB, the Asian InfrastructureInvestment Bank, and
(24:46):
the NDB, the New Development Bank,which is in Shanghai,
to take advantage of that andclaim preferred creditor treatment
status within the capitalstructure of sovereign lending.
And so I just want to mention thatbecause it's one of the powerful
protections that are granted tomultilateral development banks,
(25:11):
which is now accruingsubstantially to China's benefit.
>> Jon Hartley (25:16):
It's a great point.
And yeah,I think in recent years there's been so
certainly a lot of news about thispotential that the US could lose its
status having a world reserve currency,so-called de-dollarization.
And certainly politicians fromcountries like Brazil and
China andelsewhere have stated this as a goal.
(25:38):
I have an academic paperthat tracks all this through
post-Ukraine invasion from Russia andthrough COVID.
And it looks like sofar the US dollar status is still okay.
But certainly I think we'll continueto monitor over time whether or
not things change and
(26:00):
to what degree any of these othercountries are successful in chipping away
at the dollar status if you'relooking at the share of World Bank or
the share of Central Bank that reservesaround the world, the US dollar.
So still pretty much up therein that 50 to 70% band.
(26:21):
Now I wanna get into growth cuzyou mentioned growth a bit.
And I think economic growth issuch a huge topic, especially with
growth in advanced economies slowingdown since the global financial crisis.
With maybe the one exception of the US,
the US continues to be exceptionalin terms of its growth.
(26:42):
Over this time, developing countries andduring your tenure,
certainly developing countries havecontinued to reduce extreme poverty and
have continued to grow quite a bit andconverge quite a bit through the 2010s.
But the COVID period was pretty different.
And I think if you look at some evidence,
(27:03):
Covid was actually a pretty bad time forparticularly developing countries.
But I think it was made a lot lessbad because of the efforts of the IMF
and Bank.
You were president of the World Bankduring COVID, can you explain a little
bit more about what the World Bank andIMF response to COVID involved?
(27:24):
And what was it like being a President of
the World Bank while this once in every
100 year pandemic came along?
>> David Malpass (27:39):
The World Bank staff was affected the way people in Washington D C
and around the world were affected.
So there were lockdowns.
And soit was certainly a shock to the system.
It was worse, as we know, for
poorer people around the world forall a variety of reasons.
One, they couldn't go into work andmany were working on an hourly basis,
meaning if you don't go to work,you don't get, don't get paid.
(28:03):
And so that causedthe differentiation around the world.
There was the slowdown in global growth,which impacts developing countries
heavily because they're dependenton markets going outside.
So we can recognize the trauma andthe unfairness of the trauma.
We looked at that and then wantedto do several things in response.
(28:30):
One was the front loading ofthe assistance that was IDA.
So I had negotiated IDA 19,
which was the 19th three-yearreplenishment of the IDA trust fund.
And so it was meant to last forthree years, which started from,
it would have been,I think 2020 through 2022.
(28:53):
And so what we were able to do wasaccelerate the flow of grants and
loans from that into countries forboth humanitarian assistance and
also for COVID, fordirect assistance for COVID.
Another thing that we did was setup a fast track approval process
(29:13):
through the board of the World bank thatallowed a menu of options for countries.
So if they needed, it was on the idea that
many countries neededsimilar things in terms of,
of medical equipment and medical supplies.
(29:34):
And so that didn't have to go throughthe board, each one as an individual case.
So that drasticallyaccelerated the process.
And by the end we had managed to putforward $10 billion of assistance
that was specifically for medicalrelated items that were Covid related.
(29:56):
And that was on top of the accelerationof other kinds of lending.
And so that was successful.
One of the things that made this possiblewas fortunately for the World Bank,
the IT function, the informationtechnology function was pretty up to date.
(30:19):
And so people were able to workwith their laptops from home and
still get the throughput.
So we saw our financial commitments goup each year and they peaked in 2023.
They fell down in fiscal24 which ended on June
30th because of some of this front loading
(30:43):
that was going on of the lending process.
So I think that's a successful changeof direction by the bank during,
during COVID I wanted tomention one other thing that
what I did was lead a groupof four institutions.
(31:03):
And I'm having to dig into my memory here,but it was myself,
Kristalina at the IMF, NGOCIA at the WTO,and Tedros at the WHO.
We met regularly to analyze the situation
with regard to transportation
(31:25):
of vaccines, for example.
And sothat was a good coordinating meeting.
I have to say, though,that it was frustrating, and
that shows up in the minutesof those meetings.
One of the things I wanted to do atthe World bank was to have a disclosure of
(31:45):
what was discussed in some of these highlevel, so called high level meetings.
And so this is one where we would putout a document to say what we discussed.
And you can see through those Documents,but
my frustration atthe inability of the advanced
(32:07):
countries to give up orto give access to vaccines.
So, this was a widely discussedtopic in 2021 in the media.
Why aren't vaccines flowing topoorer people around the world?
And it was indeed frustrating.
(32:30):
There were barriers set upby the advanced economies.
So, we tried to break through those.
I think those are the thingsI was gonna mention on that.
>> Jon Hartley (32:40):
Yeah, it's amazing to think of that time,
was only a few years ago,and I remember certainly,
the US getting a vaccine out inbasically just less than a year.
There was this advanced market commitmentconcept of Operation Warp Speed.
(33:01):
That was being helmed bythe Trump White House at that time.
And then you had organizations like,COVAX, and
others were trying to distributethe vaccine throughout the world,
working in tandem withorganizations like the World Bank.
I remember there was all this competitionfor vaccines across various countries.
(33:24):
And I remember, Canada had boughta number of vaccines that didn't quite
work out from China, and it was quitea mad dash and quite a scramble.
And thankfully, we've gotten through it,and thankfully,
countries are,some countries are still recovering.
>> David Malpass (33:43):
Huge individual events.
One was the Chinese vaccine didn't work,so you had a failure of vaccination there.
One was the COVAX that you mentioned,which also didn't work.
It was supposed to, andWorld Bank did not join, and
I explained why it wouldn't work.
(34:04):
That it was a European concept ofbuying up vaccines from people,
and then having themdistribute them to countries.
And the problem was, when you tryto distribute from a central plan,
and they were intenton doing it equitably,
it basically meant no one gotvery much from that operation.
(34:30):
I think it really didn't work.
So, what we did in sharp contrast fromthe World Bank, was talk to the countries,
see which kind of vaccines they wanted andthen see if we could finance it, so
that they could get delivery onthe schedules that they wanted.
So, it was a substantiallydifferent approach.
Another type of, I'll mention twomore events that occurred, was India.
(34:56):
Initially, didn't suffer verymuch from COVID, and so,
they are a major potentialmanufacturer of vaccines.
And so, COVAX had contracted with India totake receipt of vaccines, but the contract
was pretty clear, that if Indianeeded them they wouldn't be shipped.
(35:18):
So, there was a contractingerror from COVAX,
because India decided that it neededthe vaccines for its own population.
Which had begun suffering intenselyfrom outbreak of COVID among elderly,
(35:38):
who needed to be treated with the vaccine.
So, there was a force majeure or
I don't know the legal termsof what was in the contract.
So, that was a setback forother developing countries.
And then another similar wasthe options that the US held onto.
(36:05):
This is in 2021,US wouldn't give up its options, and so
others couldn't take advantage.
And then Europe had the same,
they had vaccines in warehouses thatthey wouldn't allow to be shipped.
And so, they expired value.
And that was at a time when elderly, and
(36:25):
people at risk in poorer countriesactually needed the vaccine.
>> Jon Hartley (36:32):
It's a shame. >> David Malpass
Yeah, moving on, but that's deep history.
The overlay, and I should mention it,is the many other
challenges that were spillingoff of the global slowness in
the 2010s, andthen the hammer blow from COVID.
(36:52):
So, it meant that what wetalked about at the World Bank,
and I wrote and spoke a lot about thereversal in development that was going on.
And I think is still problematic,you mentioned in your remarks,
the idea of there being convergence,
(37:14):
that convergence slowed andthen stopped and then reversed.
That means, the idea thatdeveloping countries should grow
faster than advanced economies inorder to narrow the gap in per capita,
and to broaden the depth ofdevelopment around the world.
(37:35):
Unfortunately, that hasn't beenthe case now for some years.
And so, I worked extensively ontrying to analyze what was wrong,
and how you could reaccelerategrowth within the developing world.
That takes us to the currency issues,to the market issues, and to the rule of
(37:57):
law kinds of issues that are, I think,very important to development.
Yeah, no, it's fascinating.
I know in the economic literature,
there's a long period of divergence,up till the late 90s.
Lant Pritchett wrote this famousarticle called Divergence, Big Time.
And that was right when this period ofabout 25 years of convergence started.
(38:20):
And in the late 2010s therewere quite a few economists,
Michael Kramer,Arvind Subramanian, among others,
who were writing about this newera of converging to convergence.
And that was right before COVID started.
And since, it seems from the data thatI've looked at and regressions I've run,
you're absolutely right.
We're sort of back seemingly in thisperiod of divergence, since COVID.
(38:46):
I wanna talk a little bit about climate.
Clearly it's an important topic,and by the time you left office,
you increased the World Bank'sclimate lending to around 35%.
Would you explain what that means and
what the approach to climate was duringyour time as president of the World Bank?
>> David Malpass (39:05):
Sure.
Climate we can divide into mitigation andadaptation.
So, for adaptation,this is the idea that countries are facing
changes in their climate that affectsagriculture, it affects flooding, and
that there are changes that theycan make that will save lives.
(39:30):
And that's been going on, of course, for
decades by moving people off floodplains,for example.
And so, there is withinthe World Bank's climate commitments,
50% of the climate spending issupposed to go to adaptation.
And the World Bank was one of the feworganizations successful in doing that.
(39:53):
It takes a lot of planning fora project that will.
Improve the preparation of people forchanges that
are going on in their climate andin their weather.
And so as the bank expanded,of that 35% then,
(40:15):
17.5% is going toward ingeneral poorer countries and
taking care of people andpretty directly saving lives
through this adaptation-type financing.
An example of that is in Vietnam wherethe Mekong Delta is subject to floods and
(40:41):
where there can be changesmade to protect some of that.
And sothat is also a source of attraction for
countries that are donating to IDAof the World Bank, because for
some of the countries,particularly in Europe and Japan,
(41:01):
they're comfortable donating more forthe overlay that's climate-related.
With regard to the mitigation side, thisis where some of the challenges come in.
The World Bank was under immensepressure from the COP process,
(41:24):
the United Nations' push for more spending
on climate to put ever moreamounts of money into climate.
The challenge here is there'sa limited amount of resources.
The World Bank's annual commitments have
(41:44):
some throughput capacity constraints.
So as you move more toward climate,
that means less toward other uses suchas education, health, child nutrition.
And so there needed to be somekind of balancing of that.
What we did was calledthe Climate Change Action Plan,
(42:07):
which made the point that climate anddevelopment have to be done together, that
you can't simply overlay climate costsbecause that would sacrifice development.
So that was an integrated approach tothinking about what countries needed.
For example, in South Africa,we had a big push
(42:30):
to try to have them salvagethe electricity grid
which was suffering fromlack of capacity as solar
panels came on andwere inserted into the grid.
Solar panels are intermittent, meaningthey come on and off during the day and
(42:51):
the night, or if the weather changes.
And so that challenges the grids.
So around the world, countriesare having a big challenge trying
to get enough new investment intotheir grid that they can absorb
the intermittent sources thatare being brought on stream.
(43:13):
And so that's the some ofthe types of lending challenges.
One of the things that wewanted to do was try to put
a measure of cost benefit intothe evaluation of different projects.
One of the problems is there'sthe temptation to simply measure
(43:36):
climate spending in terms ofhow many dollars go into it.
And there was massive pressure tohave the World Bank make commitments
that it wouldn't have been able to meet,meaning high dollar value
commitments when there were notprojects available for that.
And then also have it ignorethe question of whether it's actually
(43:59):
a useful loan to make to the country.
So I think that as we thinkabout where we stand today,
one of the challenges inthe climate area is people are very
interested in responding toproblems within the world,
but then doing it in a way thathas actual benefits rather
(44:22):
than just the spending of money orof subsidies.
And I think that remainsone of the big problems.
It's not useful withindevelopment to push renewable
energy sources orusers of renewable energy,
(44:43):
like electric vehicles,if it's going to on net
add to greenhouse gasemissions in the world.
So there has to be some kind of evaluationof the cost benefit of that activity.
I think that remains oneof the big challenges.
(45:03):
And I'm concerned, as more and
more of the development spendingis diverted into climate,
it actually undercuts this goalof having better outcomes for
the people of developing countries.
>> Jon Hartley (45:20):
I know there's a lot of critics who you have challenged or
criticized the World bank orIMF in the very recent years,
along with other governments,of being too focused on climate,
in topics like inequality as well, tothe detriment of fighting extreme poverty,
which is, I think, extremelyimportant thing that we can't forget.
(45:44):
I wanna talk a little bit about inflation.
>> David Malpass (45:47):
So on that, then I think a way that the world can operate on that
is to actually evaluate the projects.
I talked about this andpeople simply didn't wanna talk about it.
I would say, okay, good, let's dothings that are useful on climate.
Do you have an idea of a project?
And that's wherethe conversation often stopped.
(46:08):
There wanted to be a blind commitment tospend money without thinking of whether it
was a useful project.
So I think that gives a grounding forwhere we could go from now.
>> Jon Hartley (46:19):
Absolutely.
>> David Malpass (46:20):
Go ahead, sorry.
>> Jon Hartley (46:21):
Good point.
I was just saying, people are wonderinga lot about inflation now in
terms of sort of the topics of latethat are, I think, top of mind.
It's been a big topic certainly forboth developing economies and
advanced economies with the globalpost-pandemic inflationary surge.
(46:45):
What are your thoughtson the causes of it and
the subsequent responsefrom central banks?
>> David Malpass (46:51):
Yeah, it's a huge problem.
If we think about our goal, how do wehave better living standards for people,
then you can talk in terms of,economists do, in terms of real income.
So that means your income in nominalterms less the inflation rate.
This, of course, has plagueddeveloping countries for forever.
(47:15):
As their currencies weaken, then workersusually lose ground against the prices.
So vendors tend to raise the price of
their goods immediatelywhen there's a devaluation.
But workers have to thencatch up after the fact.
So that's the cycle thatwe're in with the world now,
(47:38):
where workers lag behind interms of their nominal wages,
and so their dollar or their peso or
their euro goes less far fortheir daily needs.
Economists keep arguing aboutwhat are the causes of inflation.
(47:58):
I would welcome a lookBack where the central
banks actually look atthe role that they played.
And it's very important tobring in the two other factors,
the supply chain which wassubstantially disrupted by COVID,
but then also the governmentspending that was instituted
(48:22):
massively during COVID andit persisted after COVID.
So some portion of the cost pushinflation is directly related to
the giant amounts of money that werebeing committed by governments.
So people just raised their prices forthe things that were being sold to
(48:42):
the government and for competitivegoods that competed with those.
So you get a bidding warinstigated by government spending.
So that needs to be looked at.
And I think that leads to a wholehost of issues for central banks
to think about in terms of their ownrole in how to achieve price stability,
(49:06):
which is one of the prime objectivesof the US Federal Reserve.
And it is the prime objective forthe European Central Bank price stability.
How do you do that in a floatingexchange rate environment
with interest rates that fluctuateover such a broad range of activity?
(49:29):
I think the answer is you recognizeas a central bank that some part
of what you're doing affectsthe supply side of the economy.
It's not just demand that's beinginfluenced by the interest rate decisions
of the central banks, it's alsothe supply and be cognizant of that.
So that as we try to achieveprice stability going forward,
(49:54):
we recognize that more productionwill help with price stability.
This is particularly apparent, of course,
in the energy sector where energy pricesfeed into so many goods and services and
you could achieve lower inflation byhaving more production of energy.
That's the opposite of what's happeningin many countries around the world.
>> Jon Hartley (50:18):
And I think interesting to see just how, in my opinion, so
central banks were to respondto the post-pandemic inflation.
A lot of these sort of group thinkideas of inflation is transitory and
I'll come back down with bank interventionor without some complaints raising rates.
I think it's a bit of a black spoton the Federal Reserve of late.
(50:42):
I think it was pretty clear thatinflation was pretty broad-based across
the price basket by October, 2021.
And it wasn't just a used carprice spike story at that point,
which kinda started in May of 2021.
>> David Malpass (50:58):
They were late in their hikes.
But I think there needs to beeven before that going back
into the zero interest rate environment.
Zirp, remember, we had a whole word anda concept and endless conferences on
how wonderful it is that zero interestrates were going to stay for a long time.
(51:20):
And that led then into some ofthe theories of modern monetary theory and
some of the theories of during COVIDof the idea that all governments
should spend as much as possible,which ends up a two edged sword.
And so I think there needs to besome rethinking of those tools.
(51:45):
I've been critical of QEof quantitative easing or
of bond buying by central banks.
I think it should be recognizedas a tool to stabilize markets
when they fail, butnot as a stimulative tool because of
the distortion that comesfrom that bond buying.
(52:09):
But that still hasn't been acceptedwithin the international community.
And we're at risk of having centralbanks out into the future continue
to think that they're helping the worldby buying their own government's bonds.
This is a slippery slope and one I thinkwe should try to reconsider right now.
>> Jon Hartley (52:36):
Certainly, the Fed's framework reviews going on.
I think the Fed's flexible averageinflation targeting, I think is rightly
taken some heat in recent years inthe sense that it's not quite clear enough
over what period we're averaginginflation over and how flexible it is.
I just wanna pivot a little bit fromcentral banks here to really just broadly
(53:00):
the future and I'm curious,just a final question here.
What do you see in the futureas being the most important for
the developing world,as well as advanced economies?
Is it economic growth andtrying to revive it?
Is it demographics anddecline in population growth?
(53:20):
Is it AI?
Personally, I'm very excited to seethat the World Bank doing business
report is being relaunched atthe World Bank in the coming days.
They've got a meaning forthe World Bank Business Ready index.
I think it's gonna be a bit different.
But I think regulation matters a lot andI think,
it's something that that index measures.
(53:41):
But I think the regulation has beenone sort of culprit in why I think
growth in advanced economies is slowedsince the global financial crisis or
the Great Recession in the late 2000s.
But obviously,there's a lot of stories going on,
emerging economies being held backsince COVID, the return of divergence.
(54:04):
All these topics I feel likeare very big and timely.
What are the things that you're thinkingabout when you think about growth and
developing economies in internationaleconomics in the years to come?
>> David Malpass (54:20):
These are huge important topics.
The world's not very balanced right now.
The capital is flowing to parts ofthe world that are over capitalized and
not going to parts that have growingpopulations or that are undercapitalized.
So that's this differential ininfrastructure, for example, in the world.
But it's readily apparentin small business
(54:45):
growth being weak, really worldwide.
And so I'm critical of big governments,which is one of the trends,
not just in the advanced economies,but also in the developing
countries themselves,which crowds out smaller businesses.
And soI think if we can think of the growth
(55:08):
challenge in that way, it will help.
And we should recognize the importanceof all of this into real
people in real conditions.
We're talking about healthcare,we're talking about child nutrition.
The stunting rates in the worldare higher in the developing world.
Higher, not lower, this is horrible.
(55:30):
Children not getting enough caloriesto grow, or not enough nutrition,
I should say, not just caloriesto grow to their normal stature.
So it's urgent that wethink of better models.
And that takes me straight intothis issue that we're at a very
(55:52):
difficult period right now,where the United States government,
the world's biggest borrower,Has short duration and,
therefore, is directlycrowding out small businesses.
This is a combination oftreasury having issued short term
even as debt was growing rapidly.
(56:15):
That puts more burden onthe short end of the curve.
But then also the central bank,by buying bonds with overnight funding,
the central banks borrow from banks,
takes it away from small businesses andputs it into government bonds.
So that's a very harmful trade andone that's lost huge
(56:36):
amounts of money in the US butalso in Japan and in Europe.
In the US the Fed's already had $200billion of losses on that concept and
it's going to growsubstantially into the future.
So this drags growth indeveloping countries.
(56:56):
Now, not to let them off the hook,they're doing a lot of things to undercut
their own growth through by puttingtheir own spending through subsidies,
for example, that are non economic,by having big projects rather than
allowing the funding to be allocatedthrough markets to small businesses.
(57:18):
And so you see quite a few developingcountries under intense pressure,
some of which is of their own making, but
some of it is coming fromthe global financial system.
Think of the practical problem for smallbusinesses and for some of the develop.
Well, forreally most of the developing countries,
(57:38):
they borrow in floating rate debt.
So if you're a small business, you'retrying to grow and hire more workers,
you go to the bank and ask for funding foryour inventory expansion because you have
more customers and they need to have moreinventory to support the customer base.
And the bank says, that'll be LIBOR or
(58:02):
SOFR plus four or plus six.
And that means you can't affordyour growth and so you stop hiring.
And so that's going on inmany parts of the world.
It's a big problem.
It means global growthis slow right now and
there's not really a path to improve it.
>> Jon Hartley (58:23):
Absolutely, I know there's a malaria vaccine,
a highly effective malaria vaccine isbeing rolled out in Africa as well.
There's about 500,000 people a yearthat died in Africa from malaria.
So I mean, that's I think one sortof miraculous piece of hope as well.
David, a real honor to have you on andhear about your amazing career and ideas.
I want to thank you somuch for joining us today.
>> David Malpass (58:43):
Thanks, John.
Nice to talk with you.
>> Jon Hartley (58:46):
This is the Capitalism and Freedom in the 21st Century Podcast,
an official podcast of the HooverInstitution Economic Policy Working Group
where we talk about economics,markets, and public policy.
I'm Jon Hartley, your host.
Thanks so much for joining us.
[MUSIC]
China is very involved in lending its own money,
much bigger than any World Bank amountsinto their Belt and Road initiative.
And a challenge from that is try tostop some of the practices that they do.
One is a non-disclosureclauses in the contracts.
What this means is that the clauseswithin the contracts are unfair to
(00:22):
the people of the country.
Also the taking of collateralby China as it lends a country.
So for example, in Ecuador and Angola,
China had contracts which allowed themto take physical control of the oil.
That gives them an advantage and alsocontrol within the country's framework.
(00:46):
[MUSIC]
>> Jon Hartley (00:55):
This is the Capitalism and Freedom in the 21st Century Podcast,
an official podcast for the HooverInstitution Economic Policy Working Group
where we talk about economics,markets, and public policy.
I'm Jon Hartley, your host.
Today, my guest is David Malpass.
David served as the 13thpresident of the World Bank Group.
Prior to his appointment at the WorldBank, David served as U.S Undersecretary
(01:16):
of the Treasury for International Affairsduring the Trump administration.
Before joining Treasury, David founded and
led a macroeconomic researchfirm based in New York City.
Before that, he served asChief Economist at Bear Stearns and
conducted financial analysesof countries around the world.
Earlier in his career, David servedvarious roles at treasury as well during
(01:37):
the Reagan and Georgia H.W.Bush administrations.
He also served in the U.S.
senate, working on the Senate BudgetCommittee and Joint Economic Committee.
Thank you so much forjoining us today, David.
>> David Malpass (01:49):
Hi, Jon.
>> Jon Hartley (01:50):
So I want to get to your beginnings.
David, where did you grow up and how didyou first get interested in economics and
finance?
>> David Malpass (02:00):
I grew up in Northern Michigan.
I was born in Petoskey and then raisedin East Jordan, an even smaller town.
Economics, I think, came to me more frommy interest in the way the world works.
And I was a physics major in college.
And before that I wasinterested in geography,
(02:21):
in languages, and how things work.
And that leads you right into economics.
Why do people move money the way they do?
What are the policy tools?
And so that was my interest.
>> Jon Hartley (02:33):
That's fascinating, I wanna talk a little bit about.
You've had an amazing career in boththe public sector and private sector.
And you served in a variety ofgovernment roles as Treasury and
in Congress before becomingthe World Bank president.
>> David Malpass (02:48):
State Department, that was left out.
So that was two or three years of my life.
So, yeah, two years.
>> Jon Hartley (02:57):
And you've also done a lot in the private sector as well.
And many people may not realize this, butthere's a whole host of suspicious people
who served as chief economists atBear Stearns in addition to yourself,
like Carmen Reinhardt,Larry Kudlow, I'm curious,
how has your time in the privatesector informed your public service?
(03:18):
I think it's rare that youfind people that have so
much experience in economics in boththe private sector and the public sector.
>> David Malpass (03:26):
Private sector is really important.
People, for one, have to compete.
And so that was,that was good for my economics.
I was regularly ranked near the topin the Institutional Investor poll,
so that that was reinforcing of someof the ways I was doing things.
(03:48):
I wanted people often tolook at the actual raw data.
So a lot of times economistswork in terms of rate of change,
when what you need to look atis the actual levels of data.
So I learned that and more importantly,I learned lots about financial markets.
(04:11):
We forget the crossoverbetween economics and
markets, but it's tight.
And so as you think aboutwhichever kind of market,
whether it's equity markets orbond markets or
interest rate markets andfutures or currency markets,
(04:32):
they are directly crossing over betweeneconomics and finance and real world.
So I saw that in muchdetail in those years.
That was 24 years on Wall Street.
>> Jon Hartley (04:47):
And it's amazing, and what an amazing career.
Speaking of someone that's worked inboth private sector at Goldman in
various policy roles,
I think working in private sectorreally gives you an added perspective.
And certainly I think a lot of dataincreasingly is being generated in
(05:08):
the private sector as well.
Even those in the public sectoruse Bloomberg Terminals.
Jay Powell, the Chairman of the Fed,
has a Bloomberg Terminal thatcomes from the private sector.
Often we're looking at bluechip forecasts that are being
produced by an aggregation ofchief economist forecasts in
(05:28):
the types of roles that youserved in the private sector.
So I think there's a lot ofinterplay between private sector and
public sector that maybe isn'tvery much appreciated, but
you've been huge in both of those places.
I want to get more into yourtenure at the World Bank.
So the World bank is generally focusedon extreme poverty, whereas the IMF
(05:51):
is more focused on lending to distressedcountries, doing conditional lending.
For the listeners out there, can youexplain a little bit more about what
the World Bank president role entails?
I know that part of your role is to guide.
The board of about 25 executive directorsrepresent around 180 countries.
And voting at the World Bank isdetermined by capital contributions.
(06:11):
It's not like UN which is one country,one vote.
The voting power is based offof the capital contributions or
how much each countryinvests in the World Bank.
And typically, the World Bank, you'revoting on projects that come up like
building a dam ora power plant in a very poor country.
As president World Bank,how do you oversee this process and
(06:33):
what does that role entail?
>> David Malpass (06:35):
Thanks, and
you're right that the World Bankis very interested in poverty.
But remember its roots.
They were in the reconstruction ofcountries that are now advanced economies.
The first loan was to France andone of the early loans was to Luxembourg.
(06:55):
And so as we think about the World bank,there's these
five different branches I waspresident of each one that
do different things withinthe global development process.
In addition to the grants and loans forextreme poverty to the poorest
(07:16):
75 countries, that's the IDA partof the World Bank, there's IBRD,
the International Bank forReconstruction and Development,
which makes floating rate loans togovernments that are creditworthy.
And so for example,Brazil borrows from the World Bank.
(07:40):
And so those loans are like the IMF.
They're trying to get structuralreforms within the countries.
So I don't wanna submerge that.
As the World Bank hasevolved over the years,
Years it's gone from that role,the reconstruction role,
(08:05):
toward an increasing portionthat's poverty related.
But then also there'sthe humanitarian assistance side.
So when there's an earthquake,
the World Bank is often the onethat does the damage assessment.
This could be Turkey, let's say,when there was a horrendous earthquake,
(08:26):
the damage assessment.
And then the methodologies that could
bring assistance into thatparticular region of a country.
Other parts of the World Bank thatI'll just mention very briefly is
the International Finance Corporation.
Which makes loans to private sectorcompanies in developing countries that for
(08:48):
example is operating in Ukrainein the private sector now.
Then there's MIGA, the MultilateralInvestment Guarantee Agency, it is meant
to provide insurance against certaintypes of risk, like political risk.
And then a final part that isnot insignificant is ICSID,
(09:09):
the International Center forthe Dispute Settlement.
And, so that it goes toa part of the World Bank that
is from the beginning trying toimprove the rule of law in countries.
Recognizing that if youhave a better rule of law,
(09:30):
you're going to get moreinvestment into the countries.
So ICSID helps investors settle disputeswith countries and that with in the theory
that that is helping increase the amountof investment into those countries.
So it's a broad based organizationthat works closely with the IMF and
(09:50):
other parts of the international system.
>> Jon Hartley (09:55):
It's fascinating,
I worked in my own personalcapacity at World Bank and the IMF.
And both these institutions just thispast summer, the so called Bretton
woods institutions celebrate their80th anniversary this past summer.
And John Maynard Keynes, Harry DexterWhite were a big part of that.
(10:17):
Harry Dexter White representingthe US later turned
out to be a secret communist and
John Maynard Keynesrepresented the United Kingdom.
And it turned out that I think thatthe White plan versus the Keynes plan had
somewhat more influence inthe construction of the World Bank and
(10:38):
the IMF.
And I think Keynes actually wantedlike a world currency, the bancor.
And so anyways,I think it's interesting that history and
how much I guess the World Bank,the IMF changed over the years.
Your point, the first loans were goingout to France in the post World War II
reconstruction period.
But part of what the World Bank andthe IMF were doing for
(11:01):
many years was managing the systemof fixed exchange rates.
The so called Bretton Woodssystem that lasted for
about really the first 20 years orso about their existence.
And when Nixon took the US offthe gold center when every.
Most countries were then shifting awayfrom this fixed exchange rate regime that
the World Bank and IMF were managing.
(11:22):
And since currencies generally floated andthe World Bank and
IMF has sort of pivoted towardconditional lending and
a bunch of the other sort ofrules that you mentioned.
I think it's also interestingthat the World Bank and
the IMF recall the Bretton Woodsinstitutions because they were
created at this conference thatwas in Bretton Woods in Hampshire.
(11:43):
You can actually go to this hotelwhere these meetings were happening.
You can actually go up there andstay there now and there's a gold room and
everything.
There's also a golf course that's nearbyas well outside of D.C that World Bank,
IMF employees can go.
It's calledthe Bretton Woods Golf Course and
I think there's also some sort ofa nuclear bunker under there, too.
(12:04):
But I wanna get into some of the biggestchallenges that I think you face and
really overcame.
I think in many respects, you're a hugely
consequential World Bank president.
And I wanna get into sort of eachof these topics that you really
helped to tackle and I think a reallymeaningful and effective way.
(12:29):
I wanna start with China,tell us more about the challenges with
confronting China and its continuedrole as an aid recipient country.
It was kind of well above whatthe average GDP per capita
that a World Bank aidrecipient would be at.
One of the sorts of things that you did,both as Undersecretary for
(12:49):
International Affairs at treasury.
As well as president of the World Bank,to shift this and
to shift China away from beingan aid recipient country.
There's a lot of critics out there thatsay maybe China's in this case was
borrowing basically at0% from the World bank.
And lending it out into a belt and
(13:10):
road initiative basically like a hedgefund very controversial at the time.
But I'm curious, what was yourrole in helping to change that?
>> David Malpass (13:22):
Let's step back a little bit and you were talking about the fixed
exchange rate system of the worldthat's important and the gold standard.
So in China's rise interms of per capita really
was launched in 1993 when theystabilized their currency.
(13:44):
And so that brought them moreengagement with the world system than
the Soviet Union had been able to achieve.
So if we look at the courseof China in those years
of the 90s, it was expanding its role.
And at the same time, then expanding itsshareholdings within the World Bank.
(14:07):
So where we stand today is it's the thirdlargest shareholder behind the U.S and
Japan.
It wants to be a bigger shareholder,so there's constant pressure for
it to expand its role.
With regard to lending to China,it's actually not a very important topic.
I know it gets a lot of attention,
(14:27):
but it's not very much money andit's very profitable for the World Bank.
So the way you describedit isn't quite right,
they borrow at a floatingexchange rate with a spread.
So, because China is creditworthy,
it's one of the borrowersthat helps pay for
(14:51):
World Bank salaries and so on.
And in the earlier years,China was a recipient of IDA as a,
one of the poorer developing countries.
And indeed it was a poor developingcountry in the 1970s and 80s,
remember under Mao, there were famines, itwas a horrific set of economic policies.
(15:17):
And so as we bring it forward to today,
China is repaying those oldloans with interest and
it ends up being a net cashflow positive to the bank.
I'm not trying to defend the lending,I would like to see it stop.
(15:37):
But it's something that Chinanegotiated very strenuously for
in the 2017 capital increase, and
that was agreed to withinthe Trump administration for
its lending to China to decline.
From a per capita standpoint,there are quite a few countries with
(16:01):
Higher per capita than Chinawho are lending from the bank.
So it was one of the agreementsin 2017 to have all
of those countries look foran exit from IBRD lending.
But as I said,that type of lending to the higher income
developing countries is actuallyhighly profitable for the World Bank.
(16:26):
And we're talking abouta billion dollars a year,
which is a tiny fraction of China'son lending to other countries.
So it's not really a factorin supporting China.
China are very eager to have the lendingfrom the World bank for symbolic reasons.
(16:50):
It's a connection to the world andalso for demonstration reasons.
So even President Xi,in talking with me in person
in my role as president oreven before I became president,
was eager to see somelending by the World Bank.
(17:12):
And what we agreed to was to have thatlending be primarily for marine plastic.
China is one of the major contributors tothe marine plastics problem in the world.
Through its rivers, they chop upplastic into little pieces and
it's dumped into the rivers.
(17:34):
And they were looking for assistance,
technical orientedassistance to reduce that in
the same way that was donewith sewage treatment.
So the World bank had beensuccessful in China in helping
them treat sewage sothat it didn't pollute the rivers.
(17:58):
And so even at the highest levelsof the Chinese government,
they talk about now being ableto swim in the Pearl river.
And they're proud of the cleanup thatwas done and they want to see that go.
So I don't want to go on.
There are bigger issues andchallenges with China and so
maybe shall we talk about that a little,John?
>> Jon Hartley (18:18):
Sure.
>> David Malpass (18:19):
So other challenges here,
China is very involved inlending its own money,
much bigger than any World bank amountsinto their Belt and Road initiative.
And a challenge from thatis the way it's done.
And I worked both at treasury and
then at the World Bank to try to stopsome of the practices that they do.
(18:43):
One is a non-disclosureclauses in the contracts.
So they say that once they've signedthe contract with the country,
the country can't discussit even with the IMF and
the World bank,much less in public discussions.
What this means is thatthe clauses within the contracts
are unfair to the people of the country.
(19:05):
So we tried to reduce that.
Also the taking of collateral byChina as it lends to a country.
So for example, in Ecuador andAngola, China had contracts
which allowed them to takephysical control of the oil.
And then that gives them an advantagewithin those countries and
(19:30):
also control withinthe country's framework.
So scaling that back was one of the goals.
These are really problematic becauseChina doesn't want to do that and
some private sectorlenders are doing that.
That became an issue in the Chad debtrestructuring because Glencore had
(19:52):
contracts that were collateralized thatwere very difficult then to reschedule.
And so Carmen Reinhardt who Ibrought in as chief economist at
the World Bank was very involved intrying to have more transparency and
disclosure of the types oflending that was being done.
(20:14):
And that includes the swap lines thatwere done by China's central bank.
That is a current issue in Argentina forexample,
where China makes a loan andthen gets priority within that.
So that's one set of issuesthat I've been frustrated
are not moving forward withinthe world within the world framework.
(20:39):
That a related set is the restructuring ofdebt for countries that have hit the wall.
That as interest rate, well, as the world
growth didn't pick up in the 2010s.
This was a time when the central bankswere all doing QE which they claimed was
(20:59):
stimulative.
But I wrote a lot about how it was notstimulative, it was actually distortive.
It channeled capital tothe richer countries and so
the poor countries were leftwith a shortage of capital and
that pushed them into debt crisisalong with their over borrowing.
(21:21):
Many of the poorer countriesfound themselves in very
difficult circumstanceseven prior to Covid.
One of the early things I did atthe World bank in 2019 was to commission
a report by the bank on the four wavesof debt or that this is the developing
country debt crisis that includedthe Latin debt crisis that I'd worked on.
(21:44):
So as we bring this forward,China has been
successful in avoidingthe write down of its debt
to some of these poorerdeveloping countries.
And that leaves a hugenegative cash flow for
the countries to creditors thatare much better off than the countries.
(22:11):
So that's a frustration andan important part of the relationship.
And then I was also goingto mention the relationship
of China with developingcountries in terms of
the control mechanismsthrough their contracting for
(22:32):
infrastructure andother types of assistance.
So these are all key partsof the relationship.
They remain problematic.
And if we think about, okay,what is the goal here?
I was very clear in the mission at theWorld Bank to have outcome outcomes for
(22:56):
people in developing countries improve.
So I wanted to have you could measurethat through an increase in the median
income for people,the median per capita income of countries.
And so as we pursue that thenthis type of contracting
is not useful in moving the world forward.
(23:20):
But what has happened onthe international stage is China's
approach being tolerated,accepted by the international system.
So this creates tension within therelationship between the world and China.
And it's been successful forChina in pursuing that approach.
>> Jon Hartley (23:46):
I mean, it's a very big topic, the geostrategic competition,
the BRIC countries attemptedto start their own
multilateral development banks,the BRICS Bank.
>> David Malpass (24:01):
Can I interrupt before we lose that thought so that people,
your viewers, understand this?
The multilateral developmentbanks is an expanding concept
within international finance.
It includes the World bank, butalso several other major multilateral
development banks, such asthe Inter American Development bank,
(24:23):
the Asian Development bank andseveral others.
It's not a finite category and it getssubstantial benefit within the world
financial system through what'scalled preferred creditor treatment.
And so China is aware of that andhas created two institutions,
the AIIB, the Asian InfrastructureInvestment Bank, and
(24:46):
the NDB, the New Development Bank,which is in Shanghai,
to take advantage of that andclaim preferred creditor treatment
status within the capitalstructure of sovereign lending.
And so I just want to mention thatbecause it's one of the powerful
protections that are granted tomultilateral development banks,
(25:11):
which is now accruingsubstantially to China's benefit.
>> Jon Hartley (25:16):
It's a great point.
And yeah,I think in recent years there's been so
certainly a lot of news about thispotential that the US could lose its
status having a world reserve currency,so-called de-dollarization.
And certainly politicians fromcountries like Brazil and
China andelsewhere have stated this as a goal.
(25:38):
I have an academic paperthat tracks all this through
post-Ukraine invasion from Russia andthrough COVID.
And it looks like sofar the US dollar status is still okay.
But certainly I think we'll continueto monitor over time whether or
not things change and
(26:00):
to what degree any of these othercountries are successful in chipping away
at the dollar status if you'relooking at the share of World Bank or
the share of Central Bank that reservesaround the world, the US dollar.
So still pretty much up therein that 50 to 70% band.
(26:21):
Now I wanna get into growth cuzyou mentioned growth a bit.
And I think economic growth issuch a huge topic, especially with
growth in advanced economies slowingdown since the global financial crisis.
With maybe the one exception of the US,
the US continues to be exceptionalin terms of its growth.
(26:42):
Over this time, developing countries andduring your tenure,
certainly developing countries havecontinued to reduce extreme poverty and
have continued to grow quite a bit andconverge quite a bit through the 2010s.
But the COVID period was pretty different.
And I think if you look at some evidence,
(27:03):
Covid was actually a pretty bad time forparticularly developing countries.
But I think it was made a lot lessbad because of the efforts of the IMF
and Bank.
You were president of the World Bankduring COVID, can you explain a little
bit more about what the World Bank andIMF response to COVID involved?
(27:24):
And what was it like being a President of
the World Bank while this once in every
100 year pandemic came along?
>> David Malpass (27:39):
The World Bank staff was affected the way people in Washington D C
and around the world were affected.
So there were lockdowns.
And soit was certainly a shock to the system.
It was worse, as we know, for
poorer people around the world forall a variety of reasons.
One, they couldn't go into work andmany were working on an hourly basis,
meaning if you don't go to work,you don't get, don't get paid.
(28:03):
And so that causedthe differentiation around the world.
There was the slowdown in global growth,which impacts developing countries
heavily because they're dependenton markets going outside.
So we can recognize the trauma andthe unfairness of the trauma.
We looked at that and then wantedto do several things in response.
(28:30):
One was the front loading ofthe assistance that was IDA.
So I had negotiated IDA 19,
which was the 19th three-yearreplenishment of the IDA trust fund.
And so it was meant to last forthree years, which started from,
it would have been,I think 2020 through 2022.
(28:53):
And so what we were able to do wasaccelerate the flow of grants and
loans from that into countries forboth humanitarian assistance and
also for COVID, fordirect assistance for COVID.
Another thing that we did was setup a fast track approval process
(29:13):
through the board of the World bank thatallowed a menu of options for countries.
So if they needed, it was on the idea that
many countries neededsimilar things in terms of,
of medical equipment and medical supplies.
(29:34):
And so that didn't have to go throughthe board, each one as an individual case.
So that drasticallyaccelerated the process.
And by the end we had managed to putforward $10 billion of assistance
that was specifically for medicalrelated items that were Covid related.
(29:56):
And that was on top of the accelerationof other kinds of lending.
And so that was successful.
One of the things that made this possiblewas fortunately for the World Bank,
the IT function, the informationtechnology function was pretty up to date.
(30:19):
And so people were able to workwith their laptops from home and
still get the throughput.
So we saw our financial commitments goup each year and they peaked in 2023.
They fell down in fiscal24 which ended on June
30th because of some of this front loading
(30:43):
that was going on of the lending process.
So I think that's a successful changeof direction by the bank during,
during COVID I wanted tomention one other thing that
what I did was lead a groupof four institutions.
(31:03):
And I'm having to dig into my memory here,but it was myself,
Kristalina at the IMF, NGOCIA at the WTO,and Tedros at the WHO.
We met regularly to analyze the situation
with regard to transportation
(31:25):
of vaccines, for example.
And sothat was a good coordinating meeting.
I have to say, though,that it was frustrating, and
that shows up in the minutesof those meetings.
One of the things I wanted to do atthe World bank was to have a disclosure of
(31:45):
what was discussed in some of these highlevel, so called high level meetings.
And so this is one where we would putout a document to say what we discussed.
And you can see through those Documents,but
my frustration atthe inability of the advanced
(32:07):
countries to give up orto give access to vaccines.
So, this was a widely discussedtopic in 2021 in the media.
Why aren't vaccines flowing topoorer people around the world?
And it was indeed frustrating.
(32:30):
There were barriers set upby the advanced economies.
So, we tried to break through those.
I think those are the thingsI was gonna mention on that.
>> Jon Hartley (32:40):
Yeah, it's amazing to think of that time,
was only a few years ago,and I remember certainly,
the US getting a vaccine out inbasically just less than a year.
There was this advanced market commitmentconcept of Operation Warp Speed.
(33:01):
That was being helmed bythe Trump White House at that time.
And then you had organizations like,COVAX, and
others were trying to distributethe vaccine throughout the world,
working in tandem withorganizations like the World Bank.
I remember there was all this competitionfor vaccines across various countries.
(33:24):
And I remember, Canada had boughta number of vaccines that didn't quite
work out from China, and it was quitea mad dash and quite a scramble.
And thankfully, we've gotten through it,and thankfully,
countries are,some countries are still recovering.
>> David Malpass (33:43):
Huge individual events.
One was the Chinese vaccine didn't work,so you had a failure of vaccination there.
One was the COVAX that you mentioned,which also didn't work.
It was supposed to, andWorld Bank did not join, and
I explained why it wouldn't work.
(34:04):
That it was a European concept ofbuying up vaccines from people,
and then having themdistribute them to countries.
And the problem was, when you tryto distribute from a central plan,
and they were intenton doing it equitably,
it basically meant no one gotvery much from that operation.
(34:30):
I think it really didn't work.
So, what we did in sharp contrast fromthe World Bank, was talk to the countries,
see which kind of vaccines they wanted andthen see if we could finance it, so
that they could get delivery onthe schedules that they wanted.
So, it was a substantiallydifferent approach.
Another type of, I'll mention twomore events that occurred, was India.
(34:56):
Initially, didn't suffer verymuch from COVID, and so,
they are a major potentialmanufacturer of vaccines.
And so, COVAX had contracted with India totake receipt of vaccines, but the contract
was pretty clear, that if Indianeeded them they wouldn't be shipped.
(35:18):
So, there was a contractingerror from COVAX,
because India decided that it neededthe vaccines for its own population.
Which had begun suffering intenselyfrom outbreak of COVID among elderly,
(35:38):
who needed to be treated with the vaccine.
So, there was a force majeure or
I don't know the legal termsof what was in the contract.
So, that was a setback forother developing countries.
And then another similar wasthe options that the US held onto.
(36:05):
This is in 2021,US wouldn't give up its options, and so
others couldn't take advantage.
And then Europe had the same,
they had vaccines in warehouses thatthey wouldn't allow to be shipped.
And so, they expired value.
And that was at a time when elderly, and
(36:25):
people at risk in poorer countriesactually needed the vaccine.
>> Jon Hartley (36:32):
It's a shame. >> David Malpass
Yeah, moving on, but that's deep history.
The overlay, and I should mention it,is the many other
challenges that were spillingoff of the global slowness in
the 2010s, andthen the hammer blow from COVID.
(36:52):
So, it meant that what wetalked about at the World Bank,
and I wrote and spoke a lot about thereversal in development that was going on.
And I think is still problematic,you mentioned in your remarks,
the idea of there being convergence,
(37:14):
that convergence slowed andthen stopped and then reversed.
That means, the idea thatdeveloping countries should grow
faster than advanced economies inorder to narrow the gap in per capita,
and to broaden the depth ofdevelopment around the world.
(37:35):
Unfortunately, that hasn't beenthe case now for some years.
And so, I worked extensively ontrying to analyze what was wrong,
and how you could reaccelerategrowth within the developing world.
That takes us to the currency issues,to the market issues, and to the rule of
(37:57):
law kinds of issues that are, I think,very important to development.
Yeah, no, it's fascinating.
I know in the economic literature,
there's a long period of divergence,up till the late 90s.
Lant Pritchett wrote this famousarticle called Divergence, Big Time.
And that was right when this period ofabout 25 years of convergence started.
(38:20):
And in the late 2010s therewere quite a few economists,
Michael Kramer,Arvind Subramanian, among others,
who were writing about this newera of converging to convergence.
And that was right before COVID started.
And since, it seems from the data thatI've looked at and regressions I've run,
you're absolutely right.
We're sort of back seemingly in thisperiod of divergence, since COVID.
(38:46):
I wanna talk a little bit about climate.
Clearly it's an important topic,and by the time you left office,
you increased the World Bank'sclimate lending to around 35%.
Would you explain what that means and
what the approach to climate was duringyour time as president of the World Bank?
>> David Malpass (39:05):
Sure.
Climate we can divide into mitigation andadaptation.
So, for adaptation,this is the idea that countries are facing
changes in their climate that affectsagriculture, it affects flooding, and
that there are changes that theycan make that will save lives.
(39:30):
And that's been going on, of course, for
decades by moving people off floodplains,for example.
And so, there is withinthe World Bank's climate commitments,
50% of the climate spending issupposed to go to adaptation.
And the World Bank was one of the feworganizations successful in doing that.
(39:53):
It takes a lot of planning fora project that will.
Improve the preparation of people forchanges that
are going on in their climate andin their weather.
And so as the bank expanded,of that 35% then,
(40:15):
17.5% is going toward ingeneral poorer countries and
taking care of people andpretty directly saving lives
through this adaptation-type financing.
An example of that is in Vietnam wherethe Mekong Delta is subject to floods and
(40:41):
where there can be changesmade to protect some of that.
And sothat is also a source of attraction for
countries that are donating to IDAof the World Bank, because for
some of the countries,particularly in Europe and Japan,
(41:01):
they're comfortable donating more forthe overlay that's climate-related.
With regard to the mitigation side, thisis where some of the challenges come in.
The World Bank was under immensepressure from the COP process,
(41:24):
the United Nations' push for more spending
on climate to put ever moreamounts of money into climate.
The challenge here is there'sa limited amount of resources.
The World Bank's annual commitments have
(41:44):
some throughput capacity constraints.
So as you move more toward climate,
that means less toward other uses suchas education, health, child nutrition.
And so there needed to be somekind of balancing of that.
What we did was calledthe Climate Change Action Plan,
(42:07):
which made the point that climate anddevelopment have to be done together, that
you can't simply overlay climate costsbecause that would sacrifice development.
So that was an integrated approach tothinking about what countries needed.
For example, in South Africa,we had a big push
(42:30):
to try to have them salvagethe electricity grid
which was suffering fromlack of capacity as solar
panels came on andwere inserted into the grid.
Solar panels are intermittent, meaningthey come on and off during the day and
(42:51):
the night, or if the weather changes.
And so that challenges the grids.
So around the world, countriesare having a big challenge trying
to get enough new investment intotheir grid that they can absorb
the intermittent sources thatare being brought on stream.
(43:13):
And so that's the some ofthe types of lending challenges.
One of the things that wewanted to do was try to put
a measure of cost benefit intothe evaluation of different projects.
One of the problems is there'sthe temptation to simply measure
(43:36):
climate spending in terms ofhow many dollars go into it.
And there was massive pressure tohave the World Bank make commitments
that it wouldn't have been able to meet,meaning high dollar value
commitments when there were notprojects available for that.
And then also have it ignorethe question of whether it's actually
(43:59):
a useful loan to make to the country.
So I think that as we thinkabout where we stand today,
one of the challenges inthe climate area is people are very
interested in responding toproblems within the world,
but then doing it in a way thathas actual benefits rather
(44:22):
than just the spending of money orof subsidies.
And I think that remainsone of the big problems.
It's not useful withindevelopment to push renewable
energy sources orusers of renewable energy,
(44:43):
like electric vehicles,if it's going to on net
add to greenhouse gasemissions in the world.
So there has to be some kind of evaluationof the cost benefit of that activity.
I think that remains oneof the big challenges.
(45:03):
And I'm concerned, as more and
more of the development spendingis diverted into climate,
it actually undercuts this goalof having better outcomes for
the people of developing countries.
>> Jon Hartley (45:20):
I know there's a lot of critics who you have challenged or
criticized the World bank orIMF in the very recent years,
along with other governments,of being too focused on climate,
in topics like inequality as well, tothe detriment of fighting extreme poverty,
which is, I think, extremelyimportant thing that we can't forget.
(45:44):
I wanna talk a little bit about inflation.
>> David Malpass (45:47):
So on that, then I think a way that the world can operate on that
is to actually evaluate the projects.
I talked about this andpeople simply didn't wanna talk about it.
I would say, okay, good, let's dothings that are useful on climate.
Do you have an idea of a project?
And that's wherethe conversation often stopped.
(46:08):
There wanted to be a blind commitment tospend money without thinking of whether it
was a useful project.
So I think that gives a grounding forwhere we could go from now.
>> Jon Hartley (46:19):
Absolutely.
>> David Malpass (46:20):
Go ahead, sorry.
>> Jon Hartley (46:21):
Good point.
I was just saying, people are wonderinga lot about inflation now in
terms of sort of the topics of latethat are, I think, top of mind.
It's been a big topic certainly forboth developing economies and
advanced economies with the globalpost-pandemic inflationary surge.
(46:45):
What are your thoughtson the causes of it and
the subsequent responsefrom central banks?
>> David Malpass (46:51):
Yeah, it's a huge problem.
If we think about our goal, how do wehave better living standards for people,
then you can talk in terms of,economists do, in terms of real income.
So that means your income in nominalterms less the inflation rate.
This, of course, has plagueddeveloping countries for forever.
(47:15):
As their currencies weaken, then workersusually lose ground against the prices.
So vendors tend to raise the price of
their goods immediatelywhen there's a devaluation.
But workers have to thencatch up after the fact.
So that's the cycle thatwe're in with the world now,
(47:38):
where workers lag behind interms of their nominal wages,
and so their dollar or their peso or
their euro goes less far fortheir daily needs.
Economists keep arguing aboutwhat are the causes of inflation.
(47:58):
I would welcome a lookBack where the central
banks actually look atthe role that they played.
And it's very important tobring in the two other factors,
the supply chain which wassubstantially disrupted by COVID,
but then also the governmentspending that was instituted
(48:22):
massively during COVID andit persisted after COVID.
So some portion of the cost pushinflation is directly related to
the giant amounts of money that werebeing committed by governments.
So people just raised their prices forthe things that were being sold to
(48:42):
the government and for competitivegoods that competed with those.
So you get a bidding warinstigated by government spending.
So that needs to be looked at.
And I think that leads to a wholehost of issues for central banks
to think about in terms of their ownrole in how to achieve price stability,
(49:06):
which is one of the prime objectivesof the US Federal Reserve.
And it is the prime objective forthe European Central Bank price stability.
How do you do that in a floatingexchange rate environment
with interest rates that fluctuateover such a broad range of activity?
(49:29):
I think the answer is you recognizeas a central bank that some part
of what you're doing affectsthe supply side of the economy.
It's not just demand that's beinginfluenced by the interest rate decisions
of the central banks, it's alsothe supply and be cognizant of that.
So that as we try to achieveprice stability going forward,
(49:54):
we recognize that more productionwill help with price stability.
This is particularly apparent, of course,
in the energy sector where energy pricesfeed into so many goods and services and
you could achieve lower inflation byhaving more production of energy.
That's the opposite of what's happeningin many countries around the world.
>> Jon Hartley (50:18):
And I think interesting to see just how, in my opinion, so
central banks were to respondto the post-pandemic inflation.
A lot of these sort of group thinkideas of inflation is transitory and
I'll come back down with bank interventionor without some complaints raising rates.
I think it's a bit of a black spoton the Federal Reserve of late.
(50:42):
I think it was pretty clear thatinflation was pretty broad-based across
the price basket by October, 2021.
And it wasn't just a used carprice spike story at that point,
which kinda started in May of 2021.
>> David Malpass (50:58):
They were late in their hikes.
But I think there needs to beeven before that going back
into the zero interest rate environment.
Zirp, remember, we had a whole word anda concept and endless conferences on
how wonderful it is that zero interestrates were going to stay for a long time.
(51:20):
And that led then into some ofthe theories of modern monetary theory and
some of the theories of during COVIDof the idea that all governments
should spend as much as possible,which ends up a two edged sword.
And so I think there needs to besome rethinking of those tools.
(51:45):
I've been critical of QEof quantitative easing or
of bond buying by central banks.
I think it should be recognizedas a tool to stabilize markets
when they fail, butnot as a stimulative tool because of
the distortion that comesfrom that bond buying.
(52:09):
But that still hasn't been acceptedwithin the international community.
And we're at risk of having centralbanks out into the future continue
to think that they're helping the worldby buying their own government's bonds.
This is a slippery slope and one I thinkwe should try to reconsider right now.
>> Jon Hartley (52:36):
Certainly, the Fed's framework reviews going on.
I think the Fed's flexible averageinflation targeting, I think is rightly
taken some heat in recent years inthe sense that it's not quite clear enough
over what period we're averaginginflation over and how flexible it is.
I just wanna pivot a little bit fromcentral banks here to really just broadly
(53:00):
the future and I'm curious,just a final question here.
What do you see in the futureas being the most important for
the developing world,as well as advanced economies?
Is it economic growth andtrying to revive it?
Is it demographics anddecline in population growth?
(53:20):
Is it AI?
Personally, I'm very excited to seethat the World Bank doing business
report is being relaunched atthe World Bank in the coming days.
They've got a meaning forthe World Bank Business Ready index.
I think it's gonna be a bit different.
But I think regulation matters a lot andI think,
it's something that that index measures.
(53:41):
But I think the regulation has beenone sort of culprit in why I think
growth in advanced economies is slowedsince the global financial crisis or
the Great Recession in the late 2000s.
But obviously,there's a lot of stories going on,
emerging economies being held backsince COVID, the return of divergence.
(54:04):
All these topics I feel likeare very big and timely.
What are the things that you're thinkingabout when you think about growth and
developing economies in internationaleconomics in the years to come?
>> David Malpass (54:20):
These are huge important topics.
The world's not very balanced right now.
The capital is flowing to parts ofthe world that are over capitalized and
not going to parts that have growingpopulations or that are undercapitalized.
So that's this differential ininfrastructure, for example, in the world.
But it's readily apparentin small business
(54:45):
growth being weak, really worldwide.
And so I'm critical of big governments,which is one of the trends,
not just in the advanced economies,but also in the developing
countries themselves,which crowds out smaller businesses.
And soI think if we can think of the growth
(55:08):
challenge in that way, it will help.
And we should recognize the importanceof all of this into real
people in real conditions.
We're talking about healthcare,we're talking about child nutrition.
The stunting rates in the worldare higher in the developing world.
Higher, not lower, this is horrible.
(55:30):
Children not getting enough caloriesto grow, or not enough nutrition,
I should say, not just caloriesto grow to their normal stature.
So it's urgent that wethink of better models.
And that takes me straight intothis issue that we're at a very
(55:52):
difficult period right now,where the United States government,
the world's biggest borrower,Has short duration and,
therefore, is directlycrowding out small businesses.
This is a combination oftreasury having issued short term
even as debt was growing rapidly.
(56:15):
That puts more burden onthe short end of the curve.
But then also the central bank,by buying bonds with overnight funding,
the central banks borrow from banks,
takes it away from small businesses andputs it into government bonds.
So that's a very harmful trade andone that's lost huge
(56:36):
amounts of money in the US butalso in Japan and in Europe.
In the US the Fed's already had $200billion of losses on that concept and
it's going to growsubstantially into the future.
So this drags growth indeveloping countries.
(56:56):
Now, not to let them off the hook,they're doing a lot of things to undercut
their own growth through by puttingtheir own spending through subsidies,
for example, that are non economic,by having big projects rather than
allowing the funding to be allocatedthrough markets to small businesses.
(57:18):
And so you see quite a few developingcountries under intense pressure,
some of which is of their own making, but
some of it is coming fromthe global financial system.
Think of the practical problem for smallbusinesses and for some of the develop.
Well, forreally most of the developing countries,
(57:38):
they borrow in floating rate debt.
So if you're a small business, you'retrying to grow and hire more workers,
you go to the bank and ask for funding foryour inventory expansion because you have
more customers and they need to have moreinventory to support the customer base.
And the bank says, that'll be LIBOR or
(58:02):
SOFR plus four or plus six.
And that means you can't affordyour growth and so you stop hiring.
And so that's going on inmany parts of the world.
It's a big problem.
It means global growthis slow right now and
there's not really a path to improve it.
>> Jon Hartley (58:23):
Absolutely, I know there's a malaria vaccine,
a highly effective malaria vaccine isbeing rolled out in Africa as well.
There's about 500,000 people a yearthat died in Africa from malaria.
So I mean, that's I think one sortof miraculous piece of hope as well.
David, a real honor to have you on andhear about your amazing career and ideas.
I want to thank you somuch for joining us today.
>> David Malpass (58:43):
Thanks, John.
Nice to talk with you.
>> Jon Hartley (58:46):
This is the Capitalism and Freedom in the 21st Century Podcast,
an official podcast of the HooverInstitution Economic Policy Working Group
where we talk about economics,markets, and public policy.
I'm Jon Hartley, your host.
Thanks so much for joining us.
[MUSIC]
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Amy Robach & T.J. Holmes present: Aubrey O’Day, Covering the Diddy Trial
Introducing… Aubrey O’Day Diddy’s former protege, television personality, platinum selling music artist, Danity Kane alum Aubrey O’Day joins veteran journalists Amy Robach and TJ Holmes to provide a unique perspective on the trial that has captivated the attention of the nation. Join them throughout the trial as they discuss, debate, and dissect every detail, every aspect of the proceedings. Aubrey will offer her opinions and expertise, as only she is qualified to do given her first-hand knowledge. From her days on Making the Band, as she emerged as the breakout star, the truth of the situation would be the opposite of the glitz and glamour. Listen throughout every minute of the trial, for this exclusive coverage. Amy Robach and TJ Holmes present Aubrey O’Day, Covering the Diddy Trial, an iHeartRadio podcast.
Good Hang with Amy Poehler
Come hang with Amy Poehler. Each week on her podcast, she'll welcome celebrities and fun people to her studio. They'll share stories about their careers, mutual friends, shared enthusiasms, and most importantly, what's been making them laugh. This podcast is not about trying to make you better or giving advice. Amy just wants to have a good time.