World Bank president says 2009 shaping up to be 'very dangerous'

LONDON -- World Bank President Robert Zoellick, a Naperville native, said 2009 "is shaping up to be a very dangerous year" with the global economy facing its first recession since World War II.

Governments risk "doing too little too late," Zoellick told reporters today in London. Economic stimulus packages amount to about 1.4 percent of gross domestic product, short of the 2 percent demanded by the International Monetary Fund, he said.

"The recovery must be global, and incrementalism will prolong and increase and risks," Zoellick said. "Stimulus packages alone are not enough. Turnaround can't happen unless you clean up the bad assets and recapitalize the banks. If you don't take on the banking issue, stimulus is just like a sugar high."

The World Bank expects the global economy to shrink for the first time in more than six decades, and trade to decline by the most in 80 years, Zoellick reiterated, without providing a specific estimate. Poor countries are bearing the brunt and erecting trade barriers to shield domestic industries risks plunging the world economy into a "1930s scenario."

Zoellick is in Britain for a meeting of Group of 20 finance ministers and central bankers that began in Horsham, southern England today.

It would be positive for the G-20 to support increasing resources of the IMF, fight protectionism, endorse a series of "practical solutions" as part of a "coordinated global response" to the economic slump that would also include developing nations, he said.

Markets need practical, timely and doable goals to be reassured and "not grand statements and designs," Zoellick said. "U.S. consumption alone is not enough to rescue the world. We need a new model."

Zoellick, who has been working closely with European Bank for Reconstruction and Development President Thomas Mirow on eastern Europe's economic crisis, said political pressure is needed to keep western banks lending in the former Communist-led region.

Easing risks in eastern Europe "depends largely on keeping 12 key banks on the market," Zoellick said. The region has been hit hardest because "it had a growth model in the last 20 years of integrating with the European economy and the world economy," which made it more vulnerable to a downturn than less integrated countries.

The World Bank will triple its lending in the next three years and is working with the G-20 on a trade financing initiative to help recapitalize banks in poor countries, he said.

Resources from governments and international organizations must be accompanied by private funds to fill an estimated financing gap of up to $700 billion across 129 developing nations by rolling over debt and stopping capital flight, he said.