Welcome to the second day of the policy conference. My name is ilan kolet. Im the head of inflation and Commodities Research at Fidelity Investments in boston. Today, we have the pleasure of hearing the latest views from World Bank PresidentDavid Malpass. President malpass is the 13th president of the world bank group. A term he began last year. Prior to joining the world bank, he served as undersecretary of the treasury for international affairs, founded a Macroeconomics Research firm, and served as the chief economist at bear stearns. While many of us know him now as a policymaker, there is a very long history in private sector macroeconomic analysis. Yesterday, when i was chatting with a retired friend of mine, he mentioned that the best moderators are funny, fluid, and forgettable. With that, president malpass, the floor is yours. That was funny and fluid and everybody will remember it. So you failed. Well, ilan, im very pleased to be here. Ive got some notes, and then ive got some ideas of things to tell people about. And then looking forward to the conversation. Im especially pleased to be here with the National Association of business economists. The meetings were one of my favorites in the 1980s when i was at the senate, when i worked at the Senate Budget committee, treasury, and Congress Joint Economic committee. Its fun to be back and see some old friends. The 1980s was an important time for u. S. Growth, but like today, the years presented stiff challenges for global growth, and especially for developing countries. There are quite a few hotter topics today, like coronavirus. But the one i would like to tackle is the need for faster growth in developing countries, the challenges that theyre facing, and i want to focus on the importance of europes growth rate within the developing country growth rate matrix. But also the importance of Digital Financial services, which i want to speak a little about, and also, transparency of debt and investment policies, which is something that the world bank is working on hard. I can list the various parts, not everyone knows what the world bank is. But the short take is there are five different parts of it. Ibrd, the ifc, the International Finance corporation, which works on private sector growth. Theres migo, which insures against different types of crossborder risk, and theres also exit, which helps settle investment disputes between governments and investors. So its a big group with a very clear mission. The mission of lowering the poverty rate, but also increasing shared prosperity. That shared prosperity means to me and can be done from a mathematical standpoint, higher medium income, Better Living standards, better social circumstances within countries, so its a goal probably we all share, to have better prospects for people around the world and especially in the poor countries. The world bank does forecast. We have to use forecasts sometimes. In january, we put out forecasts for 2020 of 2. 5 real growth for the world. The good news is that was slightly higher than what the growth rate was in 2019. But the bad news is for one, the first half is probably going to be slower than that, given coronavirus. But also, even at 2. 5 real growth for the world, that simply is not enough growth to really lift developing countries. Many of the poorer countries need a faster growth rate by the World Economy in order to lift them up. Theres also the concern that growth is unequal, so inequality takes various forms, which are all concerning for developing country growth. One is that capital is tending to go more toward developed countries than developing countries. Meaning theres not an equalization of capital flows going on. Even within developing countries, capital is going more towards Big Companies rather than small companies. And so that, too, contributes to the inequality of both income and also of wealth. And theres an added problem with inequality. As we look at the investment rates for developing countries, they have been sluggish. Our report, the World Bank Report in june of 2019 had a subtitle which is sluggish investment in developing countries. So if you start from a platform thats unequal, and then you have an inequality of new investment, that gives you prospects for continued inequality or slow growth in the developing world. Theres simply not enough new investment taking place. So i would like to focus for a little bit on europe. And then talk also about transparency and Digital Financial services. So as we look at the growth rate around the world, one of the notable weaknesses has been in europe. It just reported numbers, the weakest growth in seven years, which is of particular concern to africa, where a lot of the worlds poor live, because their growth rate is their ability to grow is closely associated with europes growth rate. As we look at 1 or even lower growth rate for europe, we can look to various factors. One is structural. The structural system, labor imobility, but one important one, the slow growth is coming at a time when the Central Banks are trying to be as stimulative as possible. And so i want to talk a bit about that. Europes slow growth comes at a time when mainstream economics considers the ecbs policies to be massively stimulative. Thats the size of the balance sheet, the expansion of the balance sheet. One interpretation of the slow growth now is that there simply hasnt been enough qe, that the constraints on growth in europe are so great that the central bank should increase its bond purchases or even buy Corporate Bonds or increase its holdings of low rated sovereign bonds. The other interpretation which i prefer is that europes combined monetary and financial regulatory policy has not actually been stimulative. While textbooks teach m monetaryism, which means theyre multiplied through the Private Banking system by the way of Bank Reserves and reserve requirements, the reality is that we have moved to a postmonitorest world. Were in post monitarism. They have expanded many fold in these recent years, but theres no longer a direct connection to private sector bank credit growth. So we have the oddity under a monitarist system, there should have been some leveraging into private sector growth, but it hasnt happen. Adding to the inequality, Central Banks are buying Long Duration government assets using shortterm liabilities. Thats a major distortion of markets because the central Bank Purchases subsidize the least productive assets in the economy. To be productive, a market economy needs working capital. Thats shortterm floating rates capital, more than longterm capital. At least in the growth phase for an economy. That requires shortterm financing, but much of the supply of shortterm capital in europe is soaked up by the central bank in order to purchase and hold longterm government bonds. The result is the Central Bank Policy that doesnt provide monetary stimulus. Its notable the slowness of private sector credit growth in europe, especially for Small Businesses. Despite all the targeted Small Business credit programs out there, its not working. I think its important that economists recognize the new environment, postmonitarism. The key levels are financial regulatory policy, which itself is biased toward large existing borrowers. Thats a recipe for slow growth, especially for new entrants, for Small Businesses, for people without much capital, for developing countries. All of those are the system is biased to provide slow growth for the people trying to get into the system. Its a recipe for inequality. I think its important that the economic profession reexamine qe as a Monetary Policy tool. What its leaving is slow, unequal growth, because specifically because it sets out to channel capital into longterm government bonds. Its just not a workable system. I want to turn to africa for a minute, and make some general points. One is that Structural Reforms are as critical in developing countries as they are in developed countries. That means systems that work for labor mobility, for fiscal policy, for Monetary Policy, for providing sound money. Some means for people to have access to money and credit. And all of those are struggling in many of the developing country world. The world bank has a Major Program to try to push forward with transparency of debt and investment. What this means or the basis of that is the idea that if you have a more transparent system, youre going to be able to attract more capital. Its actually a recipe for more dent, more investment, and more growth. If you can have more transparency in your own system. The challenge is that it becomes very detailed in order to improve the transparency of credit markets in developing countries. And i want to list some of the challenges that were facing. I may be able to find a list of those here, and then ill say them. And this is all particularly important with the yield curve flat, because as i described, the slowness of investment into developing countries is in part as capital gets sucked up in Long Duration assets in developed countries, that doesnt leave enough for the investment thats needed in developing countries. Okay. Sorry. Let me take a moment because i really want to give you a bit of a list. At times, so im talking about how do credits get established in developing countries. And the environment has changed dramatically over recent years. We did a report, the world bank did a report about two months ago called four waves of debt, which went through and described the evolution of the debt available to developing countries. So what we find now, today in our analysis, and it was discussed at the g20 and the g7 that occurred just this weekend in riyadh. Some creditors are using contracts with excessive confidentiality clauses. So this is new. A creditor comes into a sovereign and says you have to sign a confidentiality agreement. Where these exist, were encouraging borrowers to request relief from the clause in order to proceed with transparent data reporting. Number two, at times, creditors may be violating legal requirements of other creditors such as negative pledge clauses. Again, these are important because they become obstacles to new investment within the developing country. And ibrd, one part of the world bank, has contracts with countries around the world that have negative pledge clauses inside. So thats a protection for the people of the country, as their governments think about new types of loans. We think it would be helpful if official lenders would publish templates of their loan contracts and invite we have invited the g20 to endorse this suggestion and push it forward in developing countries. I want to mention stateowned enterprise debt. One of the things going on in developing countries is you push the debt down to a subsidiary of the government, a stateowned enterprise, and that then doesnt show up in the governments debt statistics. So it ends up being an obstacle to new investors coming into the country. Another challenge is the growth of sovereign borrowing that provides collateral for the lender. It used to be that sovereign lenders didnt provide collateral, but more and more, they have been providing collateral, and that ties up the assets of the country from other types of growth or borrowing that might have been achieved on that. So were working with countries around the world to try to shift away from collateralized borrowing in order to have more transparency and get more investment in. The bank has a policy, the world bank has a policy of discouraging nonconcessional borrowing when theres concessional borrowing going on. For poorer countries, we make very concessional loans and grants to the countries. Thats undercut, and the donors interest in doing that is undercut if the country then turns around and takes on highinterestrate borrowing from other creditors. So theres a policy that discourages that, and that will be pushing forward as we go into new years of encouragement of policy. So the Transparency Initiative is to show countries that they can have faster growth and more investment if they have more transparency within their system. It sounds straightforward. It sounds it sounds like it should be the normal policy, but i have to say that the world system right now is set up to work against that approach, so were pushing back on that and really trying to deepen it. And i wanted to take a short moment and mention the importance of a new step in development, which is Digital Financial services. Throughout history, for poor people, its been a giant struggle to actually have money rather than barter. You know, a barter system is inherently inefficient because youre comparing apples and oranges. Youre comparing different kinds of goods and trying to make trades. And it was a big innovation to monetize the worlds financial system. But the problem has been really throughout time, that its hard to have money in the weakest parts of the Global Economy. Its hard for Small Businesses to get ahold of credit. Its hard for women to physically hold on to money because someone takes it away. And so thats those obstacles, i think, are we can see an avenue to improving this through Digital Financial services. You can think of it as debit cards, but its a debit card with a fingerprint, creates a great deal of security for a woman or a Small Business or some new entrant into the market to actually have, it starts at small amounts of money and then it can grow. That becomes one of the most important avenues toward dynamic new growth. So were pushing hard for Digital Financial services to grow. That means you have to have a its not easy. You have to have a regulatory policy that encourages that kind of diversity, and you also have to have a Banking System or a telecommunication system thats up to the task of keeping track of individual money for even the smallest, the poorest person within an economy. So its critical to get financial transaction costs down as low as possible so you need to be thinking about the smallest fraction of a cent per transaction cost. That enables hundreds of millions of transactions, even for poor people in countries. So kenya has been a good example of a country thats managed to set up a system that works on even the most basic cell phone and even for the poorest person, and thats opening new transaction volume, which people in this room, Financial Market people, know how critical it is to have a high volume of lowcost transactions in order to liquefy a market. So in summary, i wanted to give you some sense. Im concerned about the slowness of growth. Especially the slowness of growth in europe, and its going to be challenged by current events. And as we think about developing countries, theres an inequality because of the way the system is set up thats exacerbating the challenges. A lot of it is their own Structural Reforms, and we can hope for better systems. I work every day on countries themselves and how they can get a better growth system going in their own country. But we need more transparency in the debt and investment policies, and i think Digital Financial services provides one avenue to achieve that. Thanks very much. Wonderful. Thank you, president malpass. That was an insightful and wide range of comments. One of the benefits of being the moderator is you have the monopoly on the first question or two. I have a few questions related to, and i advise everyone to submit questions. I dont think there will be any shortage of questions. I have been coming to this conference a long time, and you mentioned, you have been as well. And we spent a considerable amount of time discussing frustratingly weak potential growth and investment. And i know this is something you spent a lot of time thinking about. In your mind, what are the Building Blocks of strong and Sustainable Growth . And how does the world bank think about this . Whats the framework . Ill tell you my view and then bring in the world bank. So i think economics is pretty clear that you need to have sound money as a starting point. You need to have a system of taxation thats not too distortive. I think thats done by having taxes at a low rate on a broad base. Thats the revenue creation goal of a tax system. Governments that provide restraint on their own spending, but almost more importantly, provide a Regulatory Framework for people to operate in a free environment. That means a rule of law. That means some clarity in terms of how the rules and regulations change over time. And so those are those are critical in order to getting growth. Because we know the growth comes from people. And often, people at the bottom having an opportunity. So this idea, you know, and it was featured at the g20 this weekend. An Opportunity Society is, i think, really important that people have to feel like they can try something and see if it works. Either thats a new kind of job skill or changing colleges or other things that, you know, are getting to go to high school even. For a lot of developing countries, the first step toward growth is being allowed to go to seventh grade or eighth grade, which a lot of countries still are not allowing. As far as how d