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We're join now on Bloomberg TV and Radio by aj Banga, the President of the World Bank, who was here with us in our Washington, d C studio. Thank you for
your time. You obviously are joining us at a very tense moment in the Middle East, specifically as we have a lack of clarity as to whether or not the ceasefire between the US and Iran is going to be one that can last, and whether it will result in the lasting reopening of the Straight of Horror Moves, which is obviously critical for global energy flows and the economy.
As a result of that, how are you considering the potential economic cascading ripple effects of if a Straight of Horror moves that may not be as free flowing as it was prior to this conflict beginning.
So thank you for having me. And that's kind of the questions that's in everybody's mind. And we've got a Spring meetings coming up next week and I'm sure to be topic number one. The reality is, no one knows.
The two dimensions are kind to solve ful one is the length and duration of the day, and the second is right now, while there is some kind of a ceasefire, you can make a guess, So what kind of damage has happened to facilities if the conflict were to restart, then what kind of damage continues to happen to energy production facilities is unclear. Those two dimensions are what payre using.
We've got a scenario that says that if it comes to a ceasefire now and three to four months of normalization, we have some impact on growth, some impact on inflation, both on the wrong side. But if it comes back into a conflict and continues after that, and this becomes a six to eight month impact on before it normalizes, not the conflict but the downstream effects, and that's a very different impact on growth inflation. So that's how we're working.
In And which of those risks, in your mind is greater right now on the growth side or on the inflationary side.
Well, I would say if you were to in the emerging markets, where my focus is, if you are to focus right now, you should be more concerned about inflation because that's the immediate impact you're feeling of the disruption in all these supplies, whether it's oil or gas, or sulfur or helium, or fertilizer or downstream chemicals. But when you go out further and if you're managing to get that inflation under control, then the next big thing to do would be to worry about your growth again. But
they're both important. I just prioritize inflation before I went chasing down the growth poth well.
And it raises the question, especially for some of these developing economies, if they're feeling the effects of this, their room to respond from a fiscal policy perspective, how much ability to do that is there's necessary.
Absolutely, So both the IMF and US and other institutions like ours are working through in what ways can we be helpful to these institutions, to these countries as they respond. So in our case, we have something called a Crisis Response Toolkit, which was launched over a couple of years ago, and what that does is ten percent of the undispersed balances or approved projects in a country, any project can be diverted for purposes of crisis management under the control
of that country's finance ministry. So if you put all that together, you add in a few other projects where they could do this and other work we're doing across our emerging markets, twenty to twenty five billion dollars of liquidity could be made available very quickly to our clients if this continues into that other scenario of longer term and we're trying to see if you can get to another somewhere between fifty and sixty billion of capacity to help.
Having said that, or make sure you understand one thing, which is, you know, what we do right now has to be done in a way in countries that it's targeted carefully and it's clearly temporary and transparent, because down these countries in the headroom to let's say, do a permanent fuel subsidy, much better than that is to do targeted subsidies to those who are the most affected in
the poorer sections of society, preferably through digital distribution. Means many countries across the emerging markets, not just in India or parts of Africa, but many countries now I have digitized ways of being able to just you targeted benefits to people, and that kind of thing is what I'm referring to, rather than blanket subsidies.
I also wonder about the effort you think, if at all, that the World Bank is going to need to be involved in simply reconstruction in the Middle East. I know there is a role to play specifically in the reconstruction of Gaza, but we're now looking at destruction in Lebanon. We've seen infrastructure damaged in Iran. How active do you expect you will have to get in the region as a whole.
Well, we started as the International Bank of Reconstruction and Development, so reconstruction is what we do. I think Ukraine, that's the other one. Yeah, Gaza, Ukraine is much bigger in terms of dollar value than these other ones currently put together. Depends how far the Middle East goes. Remember that the richer countries in the Middle East are not going to need I help on monetary terms. They can certainly use our help in knowledge and expertise, but not monetary. In fact,
they're great partners the other way for us. They put money into it us to help the developing word. But in Ukraine and Gaza and the like, it's a way and Lebanon it's very different. Yes, I presume that we'll have a role to play there. You know, we're actively involved with the Ukraine and Gaza anyway.
And you mentioned a dollar value there, and I'd like to focus on that idea of this being lending done in US dollars, because there's a conversation now that if Iran is able to charge a toll in the straight up her moves, it may do so in the yuan rather than the dollar, and whether that precipitates a decline in the dollar that has been long called for and
not necessarily materialized. Is the reserve currency. Is it your expectation that in even the nearer intermediate term the World Bank is going to be less doing less lending in US dollars or do you see that as overblown?
Not really, But the last so many years we've been lending in two or three currencies, principally for actually the Euro, the yen, the pound, and the US dollar, and that mixes kind of strayed pretty stable over the years. There are some very little demand from countries to borrowing in other currencies. It could change. You never say never. But look, I've been back thinking a long time. And the thing about a currency is that you have to believe that it is fully predictable to you in the sense of
no management of the currency beyond what's transparent. Nothing is predictable in currency. It can go up and down based on how markets think. But you don't want you want the country to be fully free and floating for you to know that it's a currency you would hold and trade and do business in. And I think that part is still very much a challenge for many other currencies.
Could there be bilateral deals that happen, They're already happening, and that could happen, but that's not large enough to challenge where the dollar stands and sets.
You talk about ups and downs and financial markets and something else that was a cause of great volatility even prior to the war with Iran. Beginning was concerned about the disruption that we're going to see from artificial intelligence, specifically in certain industries and in certain labor markets and demand for labor, especially as you're considering developing economies in which a lot of work has been outsourced that maybe
susceptible to being replaced by artificial intelligence. How do you prepare the world for that, Well.
The two topics, said, the first is the creation of jobs and roles in the developing world, which is actually one of the focus of our spring meetings, and there the issue is one point two billion young people in the developing world, are going to become eighteen years of age in the coming fifteen years. And right now those very same countries are projected to create four hundred plus million jobs. Now these are focus economists. Make them people
like us. You should treat them with a pinch of salt. But it could go up or down, but not by eight hundred million. So the point is there's both a challenge and our opportunity. There is those people have productive jobs, productive contribution to society, hope and dignity. Then you get great markets for our future products, technology, intellectual property, you know, everything else. But if you don't, then you have instability
and illegal migration. We're focused on changing that trajectory towards the positive by focusing on five sectors. Most of are actually not reliant either in global trade to be the most important thing, or for that matter, directly impacted by the kind of AI we are discussing, which is ERM and generational AI. In fact, the sector is we're talking about primary healthcare. Agriculture is a business for small farmers.
These are things that can be benefited by what I call small AI, which is AI delivered at the edge with local compute. So illiterate farmer who is able to use a phone to point at the disease in the back of a plant and not know what the name is because she can't pronounce it, but it can tell her. This in secticide from your cooperative for twenty five rupees in Uta, Pradesh is your answer. That's useful AI. It's true of healthcare, it's true of education and so on.
So the applications of this kind of AI will actually be great answers for the emerging markets. And that's the way to see this from the other lens as compared to only the lens of a threat.
Thward to hearing more about that at the meetings next week. Ajay Bonga leading the World Bank and here with us in our Washington, d C studio, thank you so much for joining us.