The World Bank in Thailand Development in Partnership the Wor ld Bank 's ac tivities in Thailand and other news related to development June 2008 44852 World Bank Launches $1.2 Billion Fast-Track Facility for Food Crisis Agricultural Support to Increase to $6 Billion, New Risk Management Tools for Crops WASHINGTON, May 29, 2008 ­ The World Bank Group Announcing several measures to address immediate to announced today it would support global efforts to longer-term food challenges, theWorld Bank Group said overcome the global food crisis with a new $1.2 billion it would boost its overall support for global agriculture rapid financing facility to address immediate needs, and food to $6 billion next year up from $4 billion, and including$200millioningrantstargetedatthevulnerable wouldlaunchriskmanagementtools,andcropinsurance in the world's poorest countries. to protect poor countries and small-holders. "As we go into the Rome meeting next week, it is crucial that we focus on specific action. Along with our partners, these initiatives will help address the immediate danger of hunger and malnutrition for the two billion people struggling to survive in the face of rising food prices, and contribute to a longer-term solution that must involve many countries and institutions," said World Bank Group President Robert B. Zoellick. Grants for Djibouti ($5 million), Haiti ($10 million), and Liberia ($10 million) are being approved today. Over the coming month, theWorld Bank expects to provide grant support to Togo, Yemen and Tajikistan. These countries havebeenidentifiedashighprioritybasedonrapidneeds assessments undertaken in the field with theWorld Food Program,theFoodandAgricultureOrganization,andthe International Fund for Agricultural Development. Rapid needs assessments have now been completed in more than 25 countries, with another 15 ongoing. The $1.2 billion facility, which is designed to address immediate needs, supports safety net programs such as food for work, conditional cash transfers, and school feeding programs for the most vulnerable. It provides support for food production ­ this year and beyond - by supplying seeds and fertilizer, improvingirrigationforsmall-scalefarmers,andproviding budget support to offset tariff reductions for food Photographer : Suwit Rhitjaroon and other unexpected costs. Continue on page 2 Page Continued from page Photographer : Thanwa Singhakam As part of the new facility the World Bank is also Under a proposal being discussed by the Bank's Board establishing a Multi-Donor Trust Fund to facilitate policy in June, Malawi could be the first of several countries and operational co-ordination among donors, and to use the World Bank as an intermediary to access leverage financial support for the rapid delivery of seeds weather derivatives. Should Malawi suffer a drought, and fertilizer to small farmers for the upcoming then it would be protected against a rise in the price planting season. of imported maize. IFC, the World Bank Group member The new rapid response facility stands alongside that promotes private sector investment, is proposing other efforts by the World Bank Group to address to support crop and livestock insurance for small-holders the global food crisis. The World Bank Board of in developing countries. Executive Directors is considering initiatives to provide risk management tools to poor countries faced by drought and other catastrophes. "We're working with our Board to deploy index-related For more information, please visit hedgesandinsuranceproductstoprotectpoorfarmersand http://www.worldbank.org/html/extdr/foodprices countries from weather and supply shocks," said Zoellick. Developing Country Growth Resilient in the Face of Financial Turmoil and Soaring Food and Energy Prices East Asia remains engine of growth, but credit squeeze and inflation will dampen growth BANGKOK, June 19, 2008 ­ In the wake of financial percent in 2008, while growth in developing countries is turmoil in high income countries and amidst high food expected to slow from an extraordinary 7.8 percent in andenergyprices,developingcountries'growthiseasing 2008 to 6.5 percent in 2008. but is still robust. Private capital flows to emerging markets,whichhitarecord$1trillionin2007,areexpected East Asia's growth i s expected to slow from 10.5 percent to drop to around $800 billion by 2009, which would still in 2007 to 8.6 percent in 2008. The slowdown is mostly be the second highest level ever, says a new World Bank in China, where growth is likely to fall by 2.5 percentage report. points in 2008. However, with prudent economic management, East Asia and China will likely continue to GlobalDevelopmentFinance2008predictsaslowdown emerge as a center of growth for the world economy, in world GDP growth from 3.7 percent in 2007 to 2.7 helpingtocountertheslowingofhigh-incomeeconomies. Page 2 Thailand, meanwhile, grew by 4.8 percent in 2007 and is Theregionalcompositionofprivatedebtandequityflows expected to grow by 5 percent (2008) and 5.4 percent becamemorebroad-basedin2007,assharesshiftedaway (2009). from East Asia and Europe and Central Asia toward Latin The main risks for East Asia stem mostly from financial America and South Asia. market volatility rather than from the global slowdown. "The presence of foreign banks in developing countries These include possible steep declines in securities expands access to credit and as well as financial services, markets across East Asia-especially in equities and to a which can spur efficiency and innovation in domestic lesser extent, offshore bond markets. banks," said Mansoor Dailami, Manager of International "Strong growth in East Asia and other parts of the Finance in the Development Prospects Group, and lead developing world is certainly helping to offset the sharp GDF author. "However, the ripple effect of shocks from the slowdown in the U.S.," said Uri Dadush, Director of the credit squeeze in the US could impact local financial World Bank's Development Prospects Group and markets, including in countries like China, Indonesia, and International Trade Department. "But at the same time, Thailand." rising global inflationary pressures ­ especially high food The report warns that countries with heavy external and energy prices ­ are hurting large segments of the poor financingneedsarepotentiallymostvulnerabletoacredit around the world." crunch, particularly in cases where private debt inflows Developing country growth in recent years has been into the banking sector have contributed to a rapid powered in part by expanding capit al flows, including expansion of domestic credit, which stokes inflationary by foreign banks that have expanded their presenc e in pressures. developing countries through acquisitions and the Whilesomelow-incomecountrieshaverecentlyaccessed establishment of local affiliates. As of end-June 2007, the international bond market, the bulk of private capital foreign claims on developing-country residents held by flows to developing countries go to just a few big major international banks stood at $3.1 trillion, up from economies, among them Brazil, Russia, India and China. $1.1 trillion at the end of 2002. Thepoorestnationsremainreliantuponofficialaid,which Net private capital flows to the region remained strong further declined in 2007. at$228billionin2007,upfrom$203billionin2006,while net official flows continued to be negative. Photographer : Sumatee Petchampai Continue on page 4 Page Continued from page internationally-traded food increased 25 percent in nominal terms over the second half of 2007. For oil, theincreasewasmostlyduetoyearsofunderinvestment and tight supply. For food and agricultural commodities,thebigdriversaredemandforbiofuels in the U.S. and Europe, high prices for fertilizer and energy inputs, and export bans on key staple crops. Such bans exacerbate shortages in global markets in the short term and can curtail supply responses to higher prices in the long term. Poor weather reduced output in some countries, and market speculation also pushed up prices. · Net FDI inflows to developing and high-income countries continued to surge in 2007, with global inflows reaching an estimated $1.7 trillion, just over a quarter of which went to developing countries. Net FDI inflows to developing countries as a whole increased to an estimated $471 billion. This was led by strong gains in Brazil ($16 billion) and Russia ($22 billion). Between 2000 and 2007, China headed developingcountriesintermsoftheirabilitytoattract FDI,attractinganestimated$84billioninFDIin2007. Thailand ranked tenth, attracting an estimated $9.6 billion. Photographer : Patcharin Sanyan · The presence of foreign banks has increased in developing regions for different reasons: in Sub- DETAILED FINDINGS Saharan Africa because of the limited reach of local · A year ago, total developing-country foreign banking infrastructure; in Europe and Central Asia exchange reserves amounted to $3.2 trillion, many along with regional integration into the European countries were posting strong economic growth, Union;andinLatinAmericaasawayforgovernments emerging equity markets were rallying, and spreads to open up to foreign competition. on emerging-market bonds had reached record low · East Asia has relatively low foreign bank presence. levels. With the onset of the sub-prime crisis in the Even excluding HSBC, Asian banks account for 40 U.S., credit conditions deteriorated markedly. Even percent of foreign bank presence in East Asia. In thoughemergingmarketshaveshownconsiderable Indonesia, 28 percent of banking assets were held by resilience so far, the balance of risks has plainly tilted foreign-controlled banks in 2006, while in Thailand, to the downside. the share was 5 percent. (Indonesia, the Philippines, · Nevertheless, despite a downward adjustment, the and Thailand lowered barriers to banking sector FDI projecteddeveloping-countrygrowthrateof6.5%in followingtheir1997-98financialcrises).China,where 2009-10 is above the average over the first half of this banking sector FDI has traditionally been strictly decade (5.6%) and well above the average of the limited,hasrecentlytakenstepstowardliberalization 1980s and 1990s (3.4 %).This illustrates the sharp rise as part of its WTO commitments. in the underlying growth potential of developing countries as both structural and macroeconomic For additional resources, polices have improved in recent years. visit: www.worldbank.org/globaloutlook · High food and energy prices are now the dominant force behind increased inflation across developing countries-andworryingly,theyarehittingthepoorest people the hardest. Prices of both energy and Page 4