The World Bank Meets Wall Street (DISCLAIMER: IANAE, I Am Not An Economist.)

They say that imitation is the sincerest form of flattery. So it should come as no suprise then that Robert Zoellick, the new World Bank president, would like the bank to behave more like a Wall Street investment firm. After all, Mr. Zoellick was once vice chairman of Goldman Sachs.

Most of us, if not everyone, have heard of the World Bank and quite possibly, the IMF (International Monetary Fund). Especially those of you living in developing countries. Both entities are sometimes referred to as the Bretton Woods Institutions.

The About Us page of The World Bank has the following to say:

"The World Bank is a vital source of financial and technical assistance to developing countries around the world. We are not a bank in the common sense. We are made up of two unique development institutions owned by 185 member countries—the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).

Each institution plays a different but supportive role in our mission of global poverty reduction and the improvement of living standards. The IBRD focuses on middle income and creditworthy poor countries, while IDA focuses on the poorest countries in the world. Together we provide low-interest loans, interest-free credit and grants to developing countries for education, health, infrastructure, communications and many other purposes."

Thus, after taking Mr. Zoellick's comments into consideration, it should be interesting to see if he will still be able to accomplish what the bank has stated on their About Us page and still make itself more Wall Street-ish.

If I may risk making a connection (and an extremely poor one at that) it appears to me (remember IANAE), that we may be seeing the beginning of a subprime type problem/situation with regards to his new vision.

From what little I know, subprime lending was the type of lending geared towards borrowers who had poor credit histories and found themselves in murky financial situations (sounds a bit like developing nations to me). Despite these factors, lending still occurred. This was good for the borrowers and good for the lenders. However, it appears that this fell apart around July 2007, during the subprime mortgage financial crisis where (among other things) home owners failed to meet their financial commitments and foreclosures ran rampant.

Enter Mr. Zoellick and his vision to make the World Bank more like Wall Street. In particular, offering developing nations and/or countries with poor credit profiles, financial products that they cannot get in the private market. So, what happens if and when these countries default?

However, Mr. Zoellick appears, at least on the surface, to have something interesting to offer to some Caribbean countries. He cites an example relating to hurricane insurance whereby several Caribbean nations formed a group, pooled risk and cut their premiums by 40 percent . That's not bad, is it?

As I said earlier, I Am Not An Economist (IANAE). My post focused on only a small part of the IHT article. Do your own research, draw your own conclusions and form your own opinions.

[World Bank mimics Wall Street as it looks for a new role via International Herald Tribune]

Labels: Barbados, Caribbean, economics, life, money, politics

10:25 AM