RUTHFULLY YOURS

MR. MALPASS: Thank you for having me, David. Good to see you.

MR. IGNATIUS: So, sir, I want to begin with the Ukraine war. On March the 1st, a week into the war, you issued a joint statement with Kristalina Georgieva, the head of the IMF, warning that the war was creating–and I’m quoting here–“significant spillovers to other countries” and that disruption of financial markets will continue to worsen should the conflict persist and that sanctions that were then being imposed will also have a significant economic effect. We’re now in the third week of this war, and I want to ask you to give us an assessment of the damage to the international economy so far and what’s ahead given current trends.

MR. MALPASS: We can see there’s a massive impact, David. It extends from energy and food supplies to the long-run problems of rebuilding or of reconstruction of all of the destruction that’s going on in Ukraine. So in addition to our horror at the human catastrophe, we have to look at the global economy and see that it’s a big negative. There’s the lost supply from Russia and Ukraine. But there’s also hoarding, which I’ve talked about, that people need to really avoid that, because that in itself drives up prices, and that has the biggest impact on the poor. What our–one of my focuses and the focus of the World Bank is on poorer countries around the world and the people in those countries, and they are immediately affected by the rise in prices that’s occurring now.

MR. IGNATIUS: Can you give us any early estimate–and obviously, this would be very, very preliminary–of what impact the war and all the disruptions it’s causing is likely to have on global GDP in this quarter and for the year?

MR. MALPASS: There’ll be a near-term immediate impact, and that comes out of–Ukraine, for example, may see over the–over the year, you know, a GDP that’s down some 30 percent, or a large number, and that’s material within the global GDP.

I think the even bigger impact for global GDP is the Russia sanctions themselves. And Russia’s a large enough economy–though I should take note, you know, their per capita income has fallen below China’s. China’s has risen above Russia’s. And so it’s not as big a factor in global GDP, maybe $1.5 trillion. And it will slow down massively as a result of the sanctions.

When you–when you add it up, though, we have to take into account that other parts of the world will make up for some of that supply. There’ll be a big reaction in terms of increasing the energy supplies outside of Russia, and food supplies outside Russia and Ukraine. And those responses historically have been–have been rapid. I don’t want to be over optimistic. It takes a year or so for the agriculture sector to adjust. But I think there can be increased supply elsewhere, and that softens the blow to global GDP.

MR. IGNATIUS: And as you try to look at these numbers, obviously, at a very early stage, do you see the net effect being significant enough that we could see a global GDP decline for this calendar year?

MR. MALPASS: My own view is that that’s not the case at this point. I should take note that we’re doing an assessment with the IMF, and we’ll be–we’ll be looking at those numbers in more detail. Even if you take the U.S. or other advanced economies, to the extent that they can increase supply–and I should bring Canada into that as well; they have–they have substantial potential for supply increases–that can soften this blow and you can see a supply response that that keeps things going. The demand in those countries right now is probably elevated. And I caution again, the right thing to do in these current circumstances is not to go out and buy extra flour or extra gasoline. It’s to recognize that the world is a dynamic global economy and will respond, and there’ll be–there’ll be enough to go–to go around. The bigger problem and the thing I think we have to keep in mind is people in poor countries and the poor, even in the advanced economies will be hit really hard by the price response, this elevated price. So, the best thing people can do is have confidence in the future, go about their jobs, and try to be as productive as possible in this crisis.

MR. IGNATIUS: Let me just ask, Mr. Malpass, because you’ve mentioned the hoarding concern a couple of times, do you see any early evidence of that kind of hoarding behavior that you’d like to put a stop to?

MR. MALPASS: Some countries have announced that they’ll curtail exports. And there’s a list. Russia itself, Serbia, and some others. And so certainly, we would like to see that not happen. That was a problem in the 2008 food crisis for the world. The–an initial reaction for some countries is to tell their farmers don’t export. That’s not a proper response for a global–for a global community and a global response to a crisis. So, I’ll take note of that.

And then at the individual level, as I mentioned, I don’t see that there will be a need for people to have extra stockpiles in their–in their kitchens or in their restaurants. The world response is, I expect, going to be robust in terms of increasing their supply in the face of this catastrophe.

MR. IGNATIUS: Let me ask you about another macroeconomic effect of the war and responses to it. Your colleague, Madam Georgieva, the head of the IMF, warned on Sunday that because Russia can’t access its non-ruble economics, central bank assets, a default on Russia’s debt, in her words, is no longer improbable. I want to ask you if you share that assessment, and if so, what you and your colleagues think is the risk of contagion in financial markets as a Russian default begins to ripple outwards and affect others.

MR. MALPASS: David, this is a challenging question, because today markets are moving and so–and I don’t have the current hour by hour information on that. I’ll speak more generally. I’m very concerned about Russia and the people of Russia. They’ve embarked on a war, and it’s creating havoc in the world and killing a lot of people in Ukraine. And so that itself is a true crisis.

And as far as their economy, it’s being subjected to intense sanctions. You know, there hasn’t been a G20 central bank. The Group of 20 is the major economies of the world. And the–while sanctions have been applied to smaller economies such as Iran, they haven’t been applied to a G20 central bank yet. Now they have by the–by the U.S. and Europe vis-à-vis the Russian central bank. And so the consequences are far-reaching, they’re severe for Russia as a nation, and they’re extending to the people of Russia through the–as a direct result of the devaluation of the ruble.

One of the notable parts of communism, and particularly Soviet communism, was the utter failure to be able to have actual money. People–the money that people could trade and use. The ruble was–had a black market, and people had to had to survive through a bad, bad economic system. And so for many Russians, this devaluation that they’re going through now brings back the memories of the communist system.

To broaden that point, China used to have that system. Up through Tiananmen Square, there was a black market in the Chinese currency. After Tiananmen Square, they stabilized the currency and their growth has been much stronger, and the per capita income growth has been much stronger than any that the Soviet system had generated. And that leads to our current situation where China’s per capita income is above Russia’s, even though Russia has these giant natural resources, has had relationship with Europe, and yet China has gone beyond it. And that has–attribute to the lower inflation rate, the ability to exchange money. And Russia has lost that almost overnight because of the sanctions. That will have a devastating impact. I don’t know what they’ll do with their bond. They have a huge external debt, and they’ll have to decide what to do with that. They have the money blocked in central banks. How they’ll use that, I don’t know.

MR. IGNATIUS: So let me ask you, the sanctions that are now in place that, as you just described, have a devastating effect on Russia may be in place for a long while. Nobody can predict how long those sanctions will remain in place. Do you and your colleagues at the World Bank think about any ways in which the Russian people, separate from the government, will be in perhaps severe economic difficulty, should be aided during this crisis? Or is that something that’s just off the board from your standpoint?

MR. MALPASS: We have stopped our operations and our programs in Russia and did that earlier. They weren’t large to begin with, and they’ve stopped. The–I think it’s premature to be thinking about aiding Russia and Russians, given that they’re proceeding with the war. And so I think we have to focus today on what to do for Ukrainians, and also for the refugees that are flowing into Eastern Europe. These are–these are giant challenges for Poland, for Romania, and Moldova. We’re working in those countries with regional support for the refugee programs. So, I want to really focus on that today. And if Russia can sort out a way out of this war that they instigated, then the world can think about what’s the right thing to do for Russia.

MR. IGNATIUS: Thank you. That’s helpful. We’ve talked about the rippling effects of the war and the reactions to it. You said on March 7 at an event called the Fragility Forum that to help the poorest nations through this period of difficulty, they should be able to restructure their debts, which would make their debts more transparent to lenders, and would obviously reduce the burden on the countries themselves. Is that something that you have a specific proposal to make on? And how would you see it being done, if so?

MR. MALPASS: These are important issues. Even prior to COVID–and of course, prior to the Ukraine war–poorer countries in the world were facing giant problems. The problems of underinvestment, the problems of education not advancing as it needs to in order to really make progress in the world, the World Bank works on that. And we also wrote a report in 2019 talking about the waves of debt that were hitting–that were hitting the people of these poor countries. There’s an inherent challenge. The governments of the countries want the money because they can spend it on government services, which sometimes is good for the people. But oftentimes, the government then leaves, and the people are left with the debt.

And so a high focus of mine and of the World Bank is for transparency in the debt relations. If someone lends you money, they should disclose what the terms of the contract are. And that hasn’t been done enough in this debt for the developing–for the poorer countries. We have proposed several steps to enhance the transparency of the debt. That means that the country should not enter into and the lender should not have contracts that prohibit disclosure of the terms of the contract. If it’s a secret contract with a government in a poor country, you can wonder what’s underneath that.

Since 2014, China has been writing routinely into its contracts a non-disclosure clause, making it into a secret contract. And so we’re asking that the lenders not do that and the borrower’s not do that. That gives you an example of a practical step. Then we’re also looking for ways that when countries become overindebted in–to an unsustainable degree, then there be a process for them to restructure the debt.

You know, in corporate law, there’s a bankruptcy process. There’s no equivalent for poor countries whose governments have borrowed too much money. And so it takes sometimes years and years of pain for the people of the country to find a way through that. One country that’s doing that now is Zambia, which has defaulted on its debt. And it was overindebted going into the situation. Some of the contracts were non-disclosed. And now the world is working to try to help it find a way to get out of that, to get out of that situation. But in the meantime, the people of the country suffer massively, because of the shutdown of parts of their financial system.

So, to–David, to bring it all together, the fragile countries are facing a giant problem now in terms of food insecurity, the prospect of rising interest rates in the advanced economies, and this overhang of debt. And it comes right on the–on the back or right after the COVID crisis and the Ukraine crisis are hitting them so hard.

MR. IGNATIUS: Let’s talk for a moment about the effects of this war on Ukraine itself and the Ukrainian economy. You said a week ago on March 7, there are no words to express the horror of the Ukrainian people, and you said at the World Bank, “We’re doing everything we can to assist Ukraine and the region.” I know you’ve spoken directly with President Zelensky and outlined for him what the World Bank proposes to do in terms of emergency relief for this country that is being battered so brutally by the Russian invasion. Could you just summarize for our viewers what the emergency proposal that you’ve made to President Zelensky is?

MR. MALPASS: Yes, thank you. I had first gone to Ukraine in 2019 and saw the–an economy that was in transition. The World Bank has a large program there. So, when the–when the war struck, we wanted to find a way to accelerate some of–some parts of that program. We’ve done that. So, we’ve taken multiple steps. One is to our own–from our own funds, we’ve been able to begin the disbursements. We actually made disbursements last week of $325 million. And we have a press release going out today showing that we now have $923 million that’s been made available over the last two weeks, including that first disbursement for Ukraine. This is–this is cash that the government can use to pay current–on current services, which are in such demand in Ukraine, of government workers, for example, in pensions and support that’s much needed.

And the key element here is the ability to disperse quickly. One of the challenges for the world during crises is there are pledges made but turning those pledges into actual commitments and disbursements is a challenge. That was very much true of the–of the COVID crisis and the vaccines, where there were many more pledges than there were actual delivery of funds or of vaccines. So, we’re trying to counteract or counter that or be very forthcoming in Ukraine with World Bank money and with other donors’ money. We were able to announce today the addition of funding from donors through a–through a trust fund that we set up last week. And so it can be fast acting. We’ve added Austria to the list. The list came out last week of Netherlands and Sweden putting in putting in cash that’s already beginning the disbursement process. And we look forward to that over the next few weeks, six to eight weeks, with more funding from multi–from bilateral donors–that means from governments around the world–into a trust fund that can quickly disperse to the government of Ukraine.

It’s important to do it this way because Ukraine has limited capacity. They’re under daily attacks. So, some of our people are working with some of their people who are in bomb shelters, working on paperwork in order to accept the money. And we’re trying to do it very efficiently for the benefit of Ukraine. So that gives you a sense.

But I’ll step back. I had a conversation with President Zelensky some two weeks ago. By the way, you know, I–David, I put out my–I work–I try to be very transparent myself on Twitter. So, for those interested, you can find the readouts and the actual written statements that I’ve made on Twitter. It’s @DavidMalpassWBG. And that gives people–you know, I invite–I invite input from people around the world in how to make the World Bank better, and how I can do a better job myself, but how can the World Bank do a better job. And with President Zelensky, I gave him input. I congratulated him on heroism and on the leadership that he’s shown in the–day after day in this devastating war.

MR. IGNATIUS: And help our viewers to understand the dimensions of this World Bank package that you’ve just described. If I understood you, you’ve got nearly a billion dollars in immediate World Bank money that you’re already dispersing, and then there’s the trust fund that you’re gathering. How much additional money would that provide quickly? And then is there a number you have for medium-term aid to Ukraine? I’ve read a figure of $3 billion as your goal in emergency relief, over the–over the medium run. Help us to understand what the precise figures are.

MR. MALPASS: The first point I’ll make is the absolutely extraordinary rapidity, the fast effort that was done over the last two weeks to have an actual disbursement. That’s why I mentioned the importance of that. And I’m proud of the World Bank and the staff and also, of course, of the Ukrainians. So it actually moved from bank to bank in order to get this done last week, the first part. And so we hope to repeat that over and over again here during the crisis.

The magnitudes are astronomical. President Zelensky discussed with me some of the needs as–because Ukraine has been hit by the economic slowdown itself. The crops that are in the fields, difficult to harvest them. There are some assertions that the Russians–this is not from President Zelensky–but I’ve heard from others, that the Russians are trying to impede the farmers in Ukraine so that they can’t bring the crops to market to cut them off from both food and from cash in Ukraine. So it’s a harsh and horrifying effort that’s going on almost day by day.

So that means that the rebuilding effort that we envision will have to involve the highway systems, the bridge systems, the–and the actual water systems of Ukraine that are being hit, and the electrical systems, of course, being damaged and airports, runways. That amounts to tens of billions of dollars. So, what we’ve done so far, is simply to say we’re going to bring forward into last week and this week as much cash as we can, and then begin building a pipeline of projects for what’s needed for Ukrainians. Some of those are now living in Poland. And I just met with a Polish Minister on that specific topic, how can we help the people that are–that are–that have come out of Ukraine. They’re safe, but they have needs for their families and for distribution of the goods and services that are coming in for them. So, we’re working on that.

The $3 billion number is our hope for the–or I mean the building–we have a concrete set of projects that add up to $3 billion that would–that would be possible over the next six to eight weeks. And so that consists of a broader set of services. That depends somewhat on the daily developments in Ukraine itself. So, I want to come back. Our immediate focus right now and of World Bank staff is how do we help the people under it that are under attack at the moment with survival, with the financial system that still is operating in parts and those kinds of immediate needs?

MR. IGNATIUS: I want to ask you about another aspect of this multi-layered crisis, and that’s the effect on energy markets. President Biden decided to ban Russian oil imports. That has a relatively limited effect because we don’t buy that much Russian oil. But the oil markets are clearly showing pressure. Oil has gone up since December from about $65 a barrel to over $100. This morning, it fell sharply. Oil was down at one point about 8 percent. It’s bounced up a little bit. So, I want to ask you where you see oil prices and energy markets going as this crisis continues. People wonder if we’re heading toward $200 a barrel oil. What’s your forecast, to the extent you can–you can share one with us, for the energy markets? What should people be prepared for? And what specifically can the World Bank do to alleviate the difficulties caused?

MR. MALPASS: Thanks. David, I won’t make a forecast. But I’ll give you some thoughts on this. One is that markets are forward looking. So, if you think about what affects a price today, it’s what do people think that production will be one year from now and two years from now. The markets are amazing in terms of being able to anticipate what the various developments are. So, over the last few weeks, the market has been trying to assess how much lost production will there be, and that includes lost production in Russia itself. Also, how much increased supply will be coming from other parts of the world, the United States, from Canada who has huge–which Canada has huge supplies which it has offered to regions such as Europe, but also made the point to the world that there needs to be some decision on how the world will reorient its supply lines, given the lack of trust in Russia.

So, one big question I suppose the market is trying to think about is, okay, there’ll be more production outside Russia, less production in inside Russia. Let’s be specific about how many barrels of production. Remember, the United States is the largest supplier or I mean producer of oil, bigger than Russia, bigger than–bigger than Saudi Arabia, and has upside–in 2019, the U.S. production went all the way up to I think nearly 13 million barrels per day. So, a big volume. That’s potential there. And similarly, Canada has big production upside. And the Gulf states themselves, the energy rich producers of the Persian Gulf have variations that they can make in supply. So, I wanted to say that pretty, pretty forcefully, that this forward–a decision for the world to make is, is it going to be able to respond to Russia with confidence and with robust investment that brings on the new supply that’s needed.

And then now it gets into the next step I’ll mention to you, is just the details for each country. I would–as I mentioned, I was just speaking with a Polish Minister. Poland takes LNG, liquefied natural gas, through a northern port and is looking at additional pipelines that will make it completely independent or not dependent on Russian natural gas. So that gives them–that independence is important for them as they consider how to–how to defend themselves from the–from the Russian movements. So, each country around the world is thinking about what to do in terms of their own wheat supply, their own corn supply, and natural gas and oil supplies as we go forward. And my emphasis is, supply is–it can be changed, and markets are forward looking when they see that change coming.

MR. IGNATIUS: So, David Malpass, president of the World Bank, thank you for giving us an extraordinary overview of the world and the how the world is responding to this crisis. We’re really grateful to you for coming.

MR. MALPASS: Thank you, David. It was good to be on, and I wish the world all the best here, and you. Thanks.