The World Bank is concerned about the spillover effects on developing countries of a slowing of U.S. money creation and will move to provide affordable capital when borrowing costs rise, its president said on Wednesday.
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The U.S. Federal Reserve has sparked a bout of financial market turmoil since its chief, Ben Bernanke, announced on May 22 that the Fed could, before the year is out, begin slowing the pace at which it creates dollars.
Emerging markets, the recipients of much of that money as it has been printed, have borne the brunt of investors taking fright.
"We're constantly watching what the spillover effects are of these unconventional monetary policies on developing countries especially," Jim Yong Kim told Reuters in an interview.
"If the United States does back off ... and slows down its (asset-buying) quantitative easing, borrowing costs will go up and we think they will also go up for developing countries. And that's a real concern."
The Fed holds a policy meeting on Wednesday. Analysts expect it to keep options open about such a move later in the year following some mixed recent economic data.
Kim did not expect capital outflow from emerging markets on anything like the scale seen in the Asian financial crisis of the late 1990s. Nor did he expect the Fed's policy switch to be "short and sharp".
"Ben Bernanke ... has been a clear and steady voice on what's needed," he said.
But he conceded that a world economy awash with money created by central banks, and with Japan now embarking on an unprecedented stimulus program, was in "uncharted territory".
"If the price of capital starts going up then we are going to have to move to find ways of creating new instruments for making capital available for infrastructure," Kim said.
The bank is working on a global infrastructure facility to do that. Kim said middle income countries were prepared to invest because they knew World Bank involvement would "crowd in" private capital too.
"We think this is urgent so we are moving pretty aggressively," he said. "As interest rates go up we have to work to provide capital at rates which make sense for developing countries."
Kim said it was remarkable how many emerging economies recovered so quickly from the 2007-2009 world financial crisis.
"We think it's because they made a lot of tough choices early on. They went through their fiscal consolidation, they looked at their public sector expenditures and rationalized them," he said.
But equally remarkable is that in an era of ultra-low interest rates these countries could not get access to affordable long-term investment. "They're saying we did all the right things ... and yet we still don't have access to capital," Kim said.
"Just like in 2008, we have to be the countercyclical arm that is ready to move to soften the blow on the developing countries," he said.
In the longer-term, the World Bank had a pivotal role to play in "derisking" infrastructure projects, particularly in Africa, so long-term private investors come in.
"Private sector investment is going to become such a huge part of our own strategy," Kim said.
He cited the example of the Inga III dam in the Democratic Republic of Congo which he said had the potential to provide electricity for the whole of sub-Saharan Africa barring South Africa.
Yet international investors are understandably cautious about getting involved in a country which has been wracked with violence during a long insurgency.
The World Bank and United Nations were trying to create "a little cocoon around that project so that we can in fact attract institutional investors".
"We have to find some way of creating a governance structure that would weather the vicissitudes of Democratic Republic of Congo politics. We think it's possible," Kim said. "So watch that space."
(Editing by Jeremy Gaunt.)