President Wolfowitz Makes Strong Case for World Bank 's Role in Middle Income Countries

Washington DC, 14 March 2006 – During President Paul Wolfowitz’s first year at the helm of the World Bank, much ink, talk and thought have been devoted to the direction the institution should take and the clients it should serve.

Some have advocated that the Bank, founded in July 1944, initially to help Europe rebuild after the war, should focus on the poorest of the poor, especially in sub-Saharan Africa, and pull out from middle-income countries. Others have suggested less radical reforms of the Bank’s evolving development priorities.

On February 28th, 2006, Wolfowitz made a strong case for the Bank’s continued engagement in middle-income countries. Speaking in Prague on the occasion of the Czech Republic’s formal graduation from borrower to donor status at the Bank, Wolfowitz outlined the reasons why the Bank remains crucially relevant even in places like China, Brazil, Russia or Poland.

“There are many people who argue today that the World Bank has no business working with middle-income countries because they are rich and they have access to so much private capital. I don't agree,” he said.

For starters, a third of the world's poor - meaning people living on less than $1 a day, live in middle-income countries. Brazil, China and India combined have more people living in extreme poverty than in all of Sub-Saharan Africa. Income levels do not measure accurately levels of development or reflect social or geographical inequalities.

The World Bank is also committed to shoring up progress and growth in middle-income countries for strategic reasons.

Because of their experience, they act as a crucial link in the transmission of development knowledge to poorer countries. But well beyond these lessons, middle-income countries are “indispensable to the mission of the World Bank Group to fight poverty worldwide,” said Wolfowitz.

Why middle-income countries matter to the World Bank

Their strength and continuing development contributes to:

Ensuring stability: When middle-income countries open their borders to goods and migrant workers from poorer neighbors, they bring stability and prosperity to the region.

A recent World Bank study showed that workers' remittances from Russia to Tajikistan could reach up to almost 30 percent of gross domestic product, bringing higher income for many families in Tajikistan where per capita income is barely $200.

Developing regional integration: Middle-income countries also help integrate markets and contribute to the upgrading of shared roads and infrastructure.

In Southeast Europe, countries like Bulgaria, Croatia, Macedonia, and Romania are working with poorer neighbors like Albania, Bosnia, Moldova, and Serbia to boost trade across their borders by cutting transport costs, fighting corruption, and modernizing customs administration.

Responding to global challenges: Issues like trade, clean energy, debt relief, or fighting the spread of avian flu and HIV/AIDS, demand increased levels of international cooperation and support. Many middle-income countries are taking on international responsibilities.

Russia has recently announced that it will forgive nearly $700 million of debt owed to Russia by 16 of the poorest countries in Africa.

Eliminating enduring pockets of poverty: Stark contrasts between rich and poor exist even in the emerging economies of Europe.

Poland is home to five of the poorest regions in the European Union. And vulnerable groups like the Roma of Central Europe continue to suffer disproportionately from poverty because they lack access to basic services and opportunities to improve their living conditions.

If middle-income countries are key contributors to the World Bank’s effort to alleviate world poverty, the Bank must make sure these countries continue to grow on solid foundations. This is where the Bank’s vast know-how in poverty reduction and development programs comes into play.

The Bank's role in middle-income countries

“More than ever, we are focused on supporting middle-income countries, helping them to meet their development challenges--by helping them to build strong institutions,” said Wolfowitz.

“Development is about more than just labor and capital. It's about institutional development, and that has become, I think, increasingly clear.”

He also mentioned “partnering with infrastructure ministries, with environmental institutions, and with other government agencies to design and implement projects that have impact on the ground” such as the roads project in Poland, for example; and “supporting the efforts of countries to build transparent and accountable public institutions so that the private sector can flourish and create jobs.”

To live up to its promises in middle-income countries, the Bank must tailor “the content and timing of [its] advice” to the key objectives of the countries it works with, and monitor the usage of loans “to ensure that the limited resources of the World Bank are being spent in ways that really make a difference in the lives of the poor.”

Additional Reading:

Full Transcript of President Paul Wolfowitz's remarks on the occasion of the Czech Republic Graduation ceremony (Feb. 28, 2006)

Growth, Poverty and Inequality in Eastern Europe and the Former Soviet Union (Oct. 2005).

Discover the Impact of World Bank projects in middle income countries in our region.

BEEPS 2005: Detailed data on what business managers think about their countries' red tape.

Poverty rates for Roma range between four and ten times that of non-Roma in Bulgaria, Hungary and Romania. Learn more facts about Europe's largest minority from the World Bank's Roma Website.