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Chapter 1: What is the main topic discussed in this episode?
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Chapter 2: What are the economic implications of disruptions in the Strait of Hormuz?
Terms and more at applecard.com. Bloomberg Audio Studios. Podcasts, radio, news. We're joined now on Bloomberg TV and radio by Ajay Banga, the president of the World Bank, who is here with us in our Washington, D.C. studio. Thank you for your time.
You obviously are joining us at a very tense moment in the Middle East specifically as we have a lack of clarity as to whether or not the ceasefire between the U.S. and Iran is going to be one that can last and whether it will result in the lasting reopening of of the Strait of Hormuz, which is obviously critical for global energy flows and the economy as a result of that.
How are you considering the potential economic cascading ripple effects of a Strait of Hormuz that may not be as free-flowing as it was prior to this conflict beginning?
Thank you for having me. That's kind of the question that's on everybody's mind. We've got our spring meetings coming up next week, and I'm sure it'll be topic number one there. The reality is no one knows the two dimensions you're trying to solve for. One is the length and duration of the disruption, and the second is...
Right now, while there is some kind of a ceasefire, you can make a guess of what kind of damage has happened to facilities. If the conflict were to restart, then what kind of damage continues to happen to energy production facilities is unclear. Those two dimensions are what we're using.
We've got a scenario that says that if it comes to a ceasefire now and three to four months of normalization, we have some impact on growth, some impact on inflation, both on the wrong side. Right.
But if it comes back into a conflict and continues after that, and this becomes a six- to eight-month impact before it normalizes, not the conflict, but the downstream effects, then that's a very different impact on growth and inflation. So that's how we're working it.
And which of those risks in your mind is greater right now, on the growth side or on the inflationary side?
Well, I would say if you were to, in the emerging markets, which is where my focus is, if you were to focus right now, you should be more concerned about inflation because that's the immediate impact you're feeling of the disruption in all these supplies, whether it's oil or gas or sulfur or helium or fertilizer or downstream chemicals.
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Chapter 3: How does inflation risk affect emerging markets?
I also wonder about the effort you think, if at all, that the World Bank is going to need to be involved in, in simply reconstruction in the Middle East. I know there is a role to play specifically in the reconstruction of Gaza, but we're now looking at destruction in Lebanon. We've seen infrastructure damaged in Iran. How active do you expect you will have to get in the region as a whole?
Well, we started as the International Bank of Reconstruction and Development. So reconstruction is what we do. I think Ukraine, that's the other one. Yeah. Gaza. Ukraine is much bigger in terms of dollar value than these other ones currently put together. Depends how far the Middle East goes. Remember that the richer countries in the Middle East are not going to need our help. on monetary terms.
They can certainly use our help in knowledge and expertise, but not monetary. In fact, they're great partners the other way for us. They put money into us to help the developing world. But in Ukraine and Gaza and the like, and Lebanon, it's very different. Yes, I presume that we'll have a role to play there. You know, we're actively involved with Ukraine and Gaza anyway.
And you mentioned the dollar value there. And I'd like to focus on that idea of this being lending done in U.S. dollars, because there's a conversation now that if Iran is able to charge a toll on the Strait of Hormuz, it may do so in the yuan rather than the dollar.
And whether that precipitates a decline in the dollar that has been long called for and not necessarily materialized as the reserve currency. Is it your expectation that in even the near intermediate term, the World Bank is going to be less doing less lending in U.S. dollars? Or do you see that as overblown?
Not really. But the last so many years, we've been lending in two or three currencies principally, four actually, the euro, the yen, the pound, and the US dollar. And that mix has kind of stayed pretty stable over the years. There is some very little demand from countries to be borrowing in other currencies. It could change. You never say never. But look, I've just been banking a long time.
And the thing about a currency is that you have to believe that it is fully predictable to you in the sense of no management of the currency beyond what's transparent. Nothing is predictable in currency. It can go up and down based on how markets think. But you want the country to be fully free and floating for you to know that it's a currency you would hold and trade and do business in.
And I think that part is still very much a challenge for many other currencies. Could there be bilateral deals that happen? They're already happening, and that could happen. But that's not large enough to challenge where the dollar stands and sits.
You talk about ups and downs in financial markets and something else that was a cause of great volatility even prior to the war with Iran beginning was concern about the disruption that we're going to see from artificial intelligence. Yes.
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Chapter 4: What crisis-response strategies are being implemented by the World Bank?
Well, there are two topics here. The first is the creation of jobs and roles in the developing world, which is actually one of the focus of our spring meetings. And there the issue is 1.2 billion young people in the developing world are going to become 18 years of age in the coming 15 years. And right now, those very same countries are projected to create 400 plus million jobs.
Now, these are forecasts. Economists make them. People like us, you should treat them with a pinch of salt. But But it could go up or down, but not by 800 million. So the point is there's both a challenge and an opportunity there. If those people have productive jobs, productive contribution to society, hope and dignity, then you get great markets for our future.
Products, technology, intellectual property, you know, everything else. But if you don't, then you have instability and illegal migration.
We're focused on changing that trajectory towards the positive by focusing on five sectors, most of which are actually not reliant either on global trade to be the most important thing, or for that matter, directly impacted by the kind of AI we are discussing, which is LLM and generational AI. In fact, the sectors we are talking about, primary health care,
Agriculture is a business for small farmers. These are things that can be benefited by what I call small AI, which is AI delivered at the edge with local compute. So an illiterate farmer who is able to use a phone to point at the disease in the back of a plant and not know what the name is because she can't pronounce it.
But it can tell her this insecticide from your cooperative for 25 rupees in Uttar Pradesh is your answer. That's useful AI. It's true of health care. It's true of education and so on. So the applications of this kind of AI will actually be great answers for the emerging markets. And that's the way to see this from the other lens as compared to only the lens of a threat.
All right. Well, we'll look forward to hearing more about that at the meetings next week. Ajay Banga, leading the World Bank and here with us in our Washington, D.C. studio. Thank you so much for joining us. This message is brought to you by Apple Card. Apple Card members can earn unlimited daily cash back on everyday purchases wherever they shop.
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Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made.
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Chapter 5: How is the World Bank planning to assist countries in crisis?
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