Thursday, September 27, 2007

World Bank's IFC pushes into poorer countries

GENEVA (Reuters) - The World Bank's private-sector affiliate is pushing increasingly into the world's poorer countries as part of its development mission, its chief executive said on Tuesday.
But Lars Thunell said the International Finance Corp. (IFC) also sees a growing role working with second-tier companies outside the main centres in middle-income countries.
"It's trying to do more in high-risk countries," Thunell told Reuters in an interview. He noted the bank was increasingly investing in post-conflict countries such as the Democratic Republic of Congo, Liberia, Lebanon and Sierra Leone.
The World Bank classifies countries as middle-income if they borrow from the International Bank for Reconstruction and Development, while its International Development Association (IDA) provides interest-free loans to poor countries.
Thunell, who was previously head of Swedish bank SEB, said that the proportion of the IFC's investments going to IDA countries had risen to 37 percent in the fiscal 2006/07 year ended June 30 from 25 percent in 2005/06.
But those rising shares reflect around a doubling in dollar terms, as the IFC's total committed volume rose to $8.3 billion in 2006/07 from $6.7 billion in 2005/06.
Thunell said the IFC was increasingly working through intermediaries such as local banks to reach the small and medium-size enterprises it considers crucial for development.
One way is to facilitate trade by guaranteeing letters of credit. This programme, launched 18 months ago, now stands at $1 billion, with 70 percent of transactions at below $1 million.
"It's really helping trade between Africa and the developed world, but also South-South trade, for instance Africa-India or between African states," Thunell said.
Other efforts are going into helping governments simplify the rules for starting a business, by doing away with fees and forms, which also removes potential for corruption.
"If it takes $500 to start a business, for a big firm it's nothing, but for a small entrepreneur thinking of moving from the informal economy it's a lot of money," Thunell said.

Thunell said the spread for emerging market borrowers had risen to 230 basis points from 140 before the credit crisis. But the problem for emerging market borrowers was not price.
"It's not really a pricing issue, it's an availability issue. In some places money has dried up and we try to be available," he said. "That's a very important part of our role -- we should be counter-cyclical."
Thunell said some sound banks in middle-income countries were having difficulties getting medium-term financing. The IFC is helping them with this, but he declined to identify them.
Thunell said the IFC had introduced tough new standards for environmental sustainability in assessing projects, but could not accede to the calls of some non-governmental organisations to withdraw from energy projects.
Electricity was a basic need for any country and poor people needed power to read, study and cook and companies needed it to produce, he said.
But the IFC was promoting alternative energy and energy efficiency, where there was a quick payback to investment. For instance it is working with Chinese gas company Xinao Gas, China Industrial Bank Co Ltd and Bank of Beijing to help customers install energy-efficient equipment.
Thunell said the IFC's growing volumes showed there was demand for its services and it had a contribution to make.
But he looked forward to the day when it would be redundant.
"We are a development institution and I would be very happy if we were squeezed out," he said. "If we weren't needed that would be terrific."