World Bank pledges more funds for poor in troubled states

WASHINGTON Tue Oct 1, 2013 11:44am EDT

Syrian refugee children play at Al Zaatri refugee camp in the Jordanian city of Mafraq, near the border with Syria September 26, 2013. REUTERS/Muhammad Hamed

Syrian refugee children play at Al Zaatri refugee camp in the Jordanian city of Mafraq, near the border with Syria September 26, 2013.

Credit: Reuters/Muhammad Hamed

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WASHINGTON (Reuters) - World Bank President Jim Yong Kim pledged to increase funding for poor people living in states in or close to conflict as part of a new lending strategy for the global development bank and warned of the impact of U.S. fiscal uncertainty on developing nations.

In a speech in Washington, where a partial government shutdown began on Tuesday after a standoff between President Barack Obama and congressional Republicans over healthcare reforms, Kim said the implications could be far-reaching.

U.S. fiscal uncertainty "combined with other sources of volatility in the global economy, could do great damage to emerging markets and developing countries in Africa, Asia, and Latin America that have lifted millions of people out of poverty in recent years," he said.

RBC Global Asset Management estimates that each week of shutdown will shave about 0.1 percentage point off U.S. economic growth, potentially helping to trim demand for imports.

Kim has sought to energize the bank around a poverty-eradication goal since he assumed his post last year and he has launched a major reorganization to make the institution more nimble and useful, especially to middle-income countries, and work more closely with the private sector.

Inequality and limited opportunities for the poorest people in each country can drive instability and breed conflict, Kim said, pointing to developments in the Middle East, where a wave of protests drove decades-old rulers from power.

"This is what happens when prosperity is reserved for a select few," he said in a speech on Tuesday. "All of those left out feel deeply the burn of inequity."

To meet its goals amid greater competition for development funds and a tight budget, the World Bank must focus on "bold" projects and technical solutions to countries, he said.

That will involve working with the bank's private sector arm, the International Finance Corporation (IFC), to encourage businesses to create jobs in poorer countries.

It will also require focusing on so-called fragile states, which will house most of the world's poor people in the next five years. Kim said the bank's fund for the poorest will plan to increase its funding to fragile states by 50 percent over the next three years, as would the IFC.

According to a draft strategy paper presented to the bank's board last month, and seen by Reuters, the new focus will require cutbacks in other programs.

Kim made no mention of cuts in his speech ahead of the International Monetary Fund-World Bank annual meetings next week. The bank is also still figuring out its financing strategy, and may start relying more on fees from advisory services and on earmarked funds from specific governments. The bank's board will discuss the finances after the meetings.

In April, Kim committed the bank to twin goals of eliminating extreme poverty by 2030 and boosting the incomes of the poorest 40 percent of the population in each country.

He has also challenged people to build a social movement around the issue, using social media and signing petitions.

Kim reiterated the bank's commitment to addressing climate change, saying it is impossible to tackle poverty without dealing with the effects of a warmer world.

The World Bank wants to fund 10,000 megawatts of energy in three years -- the entire capacity of Peru, and also help 12 countries reform their energy subsidies, he said.

(Reporting by Anna Yukhananov; Editing by Krista Hughes)

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