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World Bank changes tack to face new challengers
by Staff Writers
Washington (AFP) April 20, 2013

Eurozone faces new risks amid $13 billion Cyprus bailout
Brussels (UPI) Apr 19, 2013 - The European Union faces new risks to its 17-member eurozone as a $13 billion bailout of Cyprus failed to calm fears, exacerbated by a Fitch downgrade of Britain.

Investors warned Europe in and outside the eurozone faced dangers similar to Latin America's sovereign defaults, state confiscation of deposits and other multiple crises of the last century which carried into 2002 in parts of that region.

The bailout has pitted Cyprus against new political challenges and several eurozone countries against national parliaments, which must approve their participation in the bailout.

Despite European Commission assurances the bailout would help Cyprus overcome the crisis, the island's political establishment faces new turmoil. EU officials hope an accord on the bailout will be signed this month and cash transfers to Cyprus will begin by mid-May.

The deal promises Cyprus the first tranche of the loan from the eurozone and the International Monetary Fund by next month. The Cypriot political scene is deeply fraught, however, and parliamentary approval is likely to see repeat of furious protests during a March debate.

As part of the deal Cyprus needs to raise $17 billion to qualify for the EU-IMF loan, another sensitive issue for Cyprus, which has been stripping state assets at home and abroad to meet terms of the rescue package.

Depositors in several Cypriot banks are set to lose huge chunks of their deposits, EU data indicated. Taxes are also set to rise further, and many welfare programs will disappear, including those run by churches, which have lost millions held in banks due to the restructuring and rescue package.

Expert warnings of a sharp contraction of Cypriot economy are already in place, with predictions of up to 9 percent shrinkage but new fears are focused on a potential new slump in Europe.

There are fears too that Italy may be next in line with a deeper crisis, partly because it has failed to pick a new government. The Italian economy, the third largest in Europe after Germany and France, is in deep recession.

The problems faced by Britain indicate the European crisis isn't confined to the eurozone. Fitch credit ratings agency downgraded the United Kingdom to AA+ citing a weakened economic outlook.

The move follows Moody's downgrade in February and has upset plans for London to attract more investors from the oil-rich Persian Gulf region through Islamic finance instruments.

Britain is also worried that European plans for a financial transactions tax will damage the City of London's financial status.

FTT which aims to raise public funds and encourage more responsible trading by financial institutions and is likely to be adopted in 11 EU states. London wants to block the tax entirely as it fears the tax will be levied on deals carried out even partly in London. FTT provisions state the tax will apply to any deal linked in any way with institutions from any of the 11 countries supporting FTT. The FTT provisions will also affect U.S. financial transactions.

Global warming, a new offensive against poverty -- the World Bank has overhauled its agenda to prove its relevance in the face of competition from rich emerging nations, notably China.

On the outside walls of its headquarters in Washington, where the Bank is holding spring meetings with the International Monetary Fund, enormous posters declare the bold goal of ending extreme poverty by 2030.

World Bank President Jim Yong Kim announced this month the ambitious agenda, that would boost shared prosperity in each of its 188 member countries.

Late last year, the Bank waded into less familiar territory, compared to its past role as a development lender.

It published an alarming report on global warming that forecast "devastating" effects from an expected temperature rise of 4.0 degrees Celsius (7.2 degrees Fahrenheit) this century.

Such new tacks are not surprising, said Jacob Kirkegaard, of the Peterson Institute for International Economics.

"In all bureaucratic organizations, they will naturally seek to set new goals in order to be relevant," he said.

For the World Bank, the timing may be crucial to maintain its 66-year role as the world's leading development lender.

While sibling institution the IMF leads the battle against Europe's debt crisis, the World Bank is facing new competition from cash-rich emerging economies to its key traditional role -- lending for infrastructure projects crucial for development in poorer countries.

Holding the world's largest reserves, at $3.4 trillion in March, China for instance has massively invested in Africa, financing infrastructure projects without demanding the same conditions from host governments that the World Bank would.

The evolving challenge crossed a threshold last March in Durban, South Africa, where the BRICS countries -- including Brazil, Russia, India, China and South Africa -- announced their own development bank to rival the Western-dominated World Bank.

Still in the planning stage, the BRICS bank is aimed mainly at infrastructure deals and has prompted speculation that it could eventually marginalize the World Bank.

"This is a challenge to the World Bank to up its game and ensure its structures and programs adapt to a world in which emerging economies have an ever greater part to play on the world stage," a spokesman for Oxfam, Didier Jacobs, told AFP.

"The power balance is so much towards the advanced countries. It's definitely not a level playing field and the BRICS countries got frustrated because of that," said Sunita Dubey of Vashuda Foundation, an Indian nongovernmental organization.

Kim, who took the reins of the World Bank last July, firmly defended its importance and said even the BRICS themselves still need the Washington-based institution.

"I really have no doubt in my own mind about our continued relevance for a very long time," he told a news conference Thursday.

"We have very specific comparative advantages. Knowledge is one of them," he said.

He said the BRICS bank is "a natural extension" of the need for more investment in infrastructure in developing countries.

"Whatever other banks are built, there is plenty of infrastructure that needs to go around, and our sense is that they would want to take advantage of the knowledge that we have.

Oxfam says the World Bank should compete on the "quality" of its work and set "the highest standards" in development finance to remain relevant.

Even so, during the Washington meetings the Group of 24 emerging countries endorsed Kim's new anti-poverty agenda but criticized the lender, calling for more "flexibility" and "responsiveness" in its policies and instruments.

In terms of sheer financial resources, the World Bank cannot compete with the big emerging powers but it can count on its expertise -- and the time factor, Kirkegaard said.

"The World Bank may have temporarily lost its dominance status, but at some point in time Chinese outflows may be considerably smaller than today," especially if the world's second-largest economy slows, he said.


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Eurozone faces new risks amid $13 billion Cyprus bailout
Brussels (UPI) Apr 19, 2013
The European Union faces new risks to its 17-member eurozone as a $13 billion bailout of Cyprus failed to calm fears, exacerbated by a Fitch downgrade of Britain. Investors warned Europe in and outside the eurozone faced dangers similar to Latin America's sovereign defaults, state confiscation of deposits and other multiple crises of the last century which carried into 2002 in parts of ... read more

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