Global Policy Forum

The World Bank is prepared to help with the rebuilding of Iraq once the war is over but major new loans will require authorisation from the United Nations, the institution's Australian president said. The comments by James Wolfensohn put the institution on the side of European nations who have been arguing that any reconstruction program should be done with UN authorisation. President George W Bush's administration has argued that the United States and its allies in the war initially should play the lead role in running Iraq. However, Wolfensohn said the World Bank can only deal with legitimate governments recognised by the United Nations. He said to lend to any other authority would complicate repayment questions. "We are limited to dealing with recognised governments and that is a decision for the United Nations to take," Wolfensohn said. "From a practical point of view it is important. We have to lend to somebody who is willing to repay."

Wolfensohn said the World Bank may dispatch assessment teams to Iraq to determine what the greatest needs are before there is any formal U.N. vote, but he said a decision to grant loans would have to wait for U.N. authorisation. He deflected questions about how much money the World Bank, the world's largest provider of loans to developing countries, would be willing to extend to Iraq. He said Iraq needs to clear up $82 million in past-due payments on old World Bank loans before any new loans could be made. However, he said Iraq's oil revenues and other resources could easily cover this amount.

Wolfensohn said reopening the country's schools and establishing basic services would be top priorities based on loans the World Bank has made to other post-conflict countries. "In Afghanistan, the first step was to try to get the kids back in school," Wolfensohn said. "There are many things you can do, from our past experience, to make a country more peaceful, more manageable."

But Wolfensohn said the bank's experience in post-conflict countries such as East Timor, Bosnia and Afghanistan showed that each country presented different challenges. Wolfensohn met with reporters to preview the upcoming spring meetings of the 184-nation World Bank and its sister lending organisation, the International Monetary Fund. The Bush administration is hoping to use the finance meetings, which begin with talks among the world's seven richest countries, to generate commitments for funds for rebuilding Iraq. The administration also wants to explain efforts to preserve as much as possible of its proposed $US726 billion ($A1.2 trillion) in tax cuts designed to jumpstart the US economy. However, the IMF challenged whether it was appropriate to push for new tax cuts when the US federal budget deficit is soaring.

The IMF's scepticism is shared by many of America's rich allies in the Group of Seven - which is composed of the United States, Japan, Germany, France, Britain, Italy and Canada. Treasury Secretary John Snow and Federal Reserve Chairman Alan Greenspan will lead discussions among their counterparts from this group Friday. The meetings are expected to attract demonstrators calling for changes in world economic policies, including debt relief for poor countries, though the protests are expected to be smaller than in the past.

The IMF, issuing its latest World Economic Outlook, trimmed its expectations for global growth to 3.2 per cent for this year, from a 3.7 per cent forecast in September. Much of the markdown was due to a temporary jump in world oil prices over worries about supply disruptions. The IMF warned that even the reduced forecast might not be realised because of the failure of economic policy-makers to address such problems as rising budget and trade deficits in the United States, massive bad loans overhanging Japanese banks and rigid labor markets in Europe that drive up employment costs.

IMF chief economist Kenneth Rogoff said the new IMF forecast had assumed the war would be over quickly, but he said other factors would result in only a "tepid global recovery" this year, followed by more normal growth of 4.1 per cent next year. Rogoff said the optimism for 2004 could be misplaced because of other risks, including lingering effects from the bursting of the stock market bubble to the threat that a new bubble is developing in US housing prices and fears about the new, deadly SARS virus.

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