Global finance system partly to blame for inequality – World Bank’s Malpass

WASHINGTON –

World

Bank President David

Malpass

on Monday said fiscal and monetary policies were operating in “uncharted territory” since the start of the COVID-19 pandemic and may be contributing to a sharp rise in

global


inequality

and poverty.

Malpass

told a roundtable hosted by Chinese Premier Li Keqiang the number of people in extreme poverty had increased by over 100 million since the beginning of the pandemic even as

global

spending has increased to an all-time record.

Advanced economies have rebounded, while the poorest countries had seen only a weak rebound, or none at all, he said. This was causing “tragic reversals” in median incomes, women’s empowerment and nutrition, he said, and inflation, supply chain bottlenecks, and high energy prices were aggravating these trends.

“Part of the

inequality

problem is

global


finance

itself and the unequal structure of the stimulus,”

Malpass

said, noting that prevailing sovereign debt, fiscal and monetary policies were adding to

inequality

.

Malpass

said monetary policy in the advanced economies had long focused on reserve requirement ratios and limited growth in bank reserves to achieve stability in currencies and prices, an approach still used by China.

Other major central banks had switched to a “post-monetarism

system

” of using very large amounts of excess bank reserves to purchase and hold long-duration bonds and other assets, which he said provided price support for a highly select group of assets.

That approach, he said, excluded small businesses and developing countries, while restraining policy through regulation of liquidity and bank capitalization ratios.

Fiscal policy was also channeling resources to narrow groups within major borrowers, while leaving others behind, and sovereign debt policies were contributing to

inequality

.

Malpass

repeated his call for greater transparency in debt contracts and a freeze in debt payments for countries with unsustainable debt. He said creditors should move away from collateral and escrow arrangements.

“As one of the largest creditors of developing countries, China’s active participation and strong voice in debt reduction efforts are very much needed and would benefit all participants by encouraging sustainable investment and debt,” he said. –

Reuters