World Bank president Jim Yong Kim urged eurozone politicians to live up to their promises and implement tough economic reforms amid growing evidence that the crisis has started to sap global economic growth and hurt the world’s poorest people.
In an exclusive interview with Emerging Markets on Wednesday, Kim said he wanted finance ministers gathering in Tokyo this week to “drive forward” plans to restore economic growth in the eurozone.
Kim, who reached his first 100 days in office this week, gave his clearest signal yet that he plans to change the bank’s strategy to focus on ending poverty, creating jobs and tackling climate change in a three-pronged move he said would “change the arc of history”.
Kim threw his support behind the moves by the European Central Bank to offer unlimited financial support for indebted eurozone nations’ bonds and by the US Federal reserve to launch a third round of quantitative easing.
“They have improved the investment environment a bit. But the fact that we have cut back on our expectations is a very, very serious concern,” he said.
This week the Bank slashed its economic forecast for east Asia and China, which it now expected to grow by just 7.7% this year, its slowest rate for 13 years, highlighted the impact of the slowdown.
“We can’t simply sit on our hands and wait for the situation to get better. Each of our member countries has to be aggressive in thinking of medium and long-term plans to restore growth,” he said.
“The most important thing is that there have been a lot of promises made about reforms and cuts to spending. Even now – and not just in the area of austerity – there are different things that the ministers have promised to do to restore growth. We would like everyone to go back and just do these things. If the ministers simply did all the things that they promised to do, I think we would be in a much better shape.”
He said he understood the “political realities” eurozone countries faced but said there was a lack of action in Europe. He contrasted it with the experience of his native South Korea where millions of citizens gave $1 billion worth of jewellery to the national treasury to pay off the country’s debts.
“This is a question of solidarity and cohesion,” he said. “It is critical for us to find a path towards that sort of solidarity. If we can do that I am even more optimistic that growth will be restored.”
He warned it would be “terrible” if US political leaders failed to deal with the “fiscal cliff” of pre-programmed tax hikes and spending cuts next year.
“I know there are intensive discussions going on right now and that American lawmakers are very much aware of the enormous global impact it would have if they can’t come to an agreement.” he said.
Kim, the first non-economist or politician to run the Bank, said his overarching ambition for his five-year term was a “world free of poverty”. “The question I have been asking is what can we do to fundamentally change the arc of history in the sense of ending absolute poverty more quickly than it is currently predicted to end,” Kim said.
Speaking on a visit to the tsunami-hit city of Sendai, he said the key to ending poverty was job creation, warning that economic growth that did not reduce mass youth unemployment was a “fundamentally unsound position”.
In one of the clearest signs of a major policy shift Kim said the Bank would focus on “global public goods” - problems such as climate change that affect some countries worse but that require all nations to work together to solve.
He said scientific evidence of man-made climate change was “overwhelming” and that the outlook was even worse than he had thought. “We have to be more serious about climate change,” he said. “We really need to get countries to see responsiveness to climate change as a source of future economic growth. If we can move the economy in that direction we will be both pro-growth and tackle one of the most critical issues.”