Syndicate content

Risk

Innovations for Resolving Disputes in Development

Amar Inamdar's picture

As rapid innovation and adoption of new communications technology sweeps across the globe, one thing is certain: the trend for increasing demand from citizens to have a greater say in public projects.  It’s an opportunity and a challenge, depending on how you look at it.  The World Bank can do more to step up to the challenge of managing this kind of complexity more smartly. Typically, we are seeing disputes relating to land, water and governance issues. These trends are not going away. So what can we do about it? Well the short answer is—plenty.
 
“We are witnessing this incredible transformation in the Middle East and North Africa region that is still unfolding,” said Inger Andersen, the World Bank’s vice president for the Middle East and North Africa Region, speaking at an event on innovations for resolving disputes in development in Washington.

“It is a different reality now,” said Andersen. “Hearing the peoples’ voice inside the programs and projects is a major breakthrough for us. The work we are now doing in the region is reaching millions via Twitter, Facebook, and social media outlets. It is a real challenge to ride on the transparency wave across the region while adhering to our policies at the Bank.”

Brazil, Korea: Two Tales of a Macroprudential Regulation

Otaviano Canuto's picture

The pervasiveness and relevance of asset price booms and busts in modern economies has now been fully acknowledged. So has the case for combining prudential regulation and monetary policy in the complementary pursuit of financial and macroeconomic stability.

Seeing the Human Face of the Global Financial Crisis

Inci Otker-Robe's picture

The collapse of a US investment bank in the fall of 2008 turned a severe credit crunch into the worst financial crisis since the great depression, providing a blunt reminder that mismanagement of risks does not go unpunished. What is more, mismanaged risks do not respect boundaries in a tightly interconnected world, damaging anything they touch on their path, hurting especially the poor and vulnerable. While financial systems can contribute to economic development by providing people with useful tools for risk management, such as credit, savings, and insurance, they can create severe crises with devastating social and economic effects when they fail to manage the risks they retain.

Champions of risk management

Rasmus Heltberg's picture

The declaration, in 1979, of the worldwide eradication of smallpox marked a highly unusual achievement. The only human disease ever to be eradicated, the eradication of smallpox is also unusual in being an instance of successful risk management that many people have actually heard about. When it comes to risk management, there is often more attention to the failures than to the successes. While crises, crimes, disasters, and social unrest dominate the front pages, and the attention of our leaders, the champions of risk management whose foresight averts damage and destruction rarely get the credit they deserve.

That is a shame because many development problems have a basis in deficient risk management. Take poverty. While every year many families escape from poverty, others fall on hard times. Illness, for example, is a frequent cause of poverty in developing countries where most people have no health insurance and friends and family provide the only safety net. In fact, the toxic mix of high risk and inadequate risk management are implicated in a host of development problems, ranging from malnutrition, infant mortality, civil strife, crime, violence, to sclerotic private sector investment and job creation. To overcome these problems and prosper, the developing world needs champions of risk management.

Why risk management for development organizations is important

Magda Stepanyan's picture

The following post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.

There are three fundamental challenges in mainstream risk management for development organisations: a culture of blame, lack of adaptive capacity on the part of development organisations and the lack of a shared concept of risk management.

Quite often the manifestation of risks is associated with failure, which subsequently leads to blame. This in turn hinders proactive risk-taking behavior among development organisations and limits their performance. Often we forget that only by failing can we learn to succeed. At the same time, there are also failures that are unnecessary and avoidable if risks are systematically taken into account. Failing to prevent recurrent crises, for example, is unjustified. Recurring drought and hunger are not typical of the Horn of Africa as a geographical region. They are signs of continuing failure on the part of local governments and the international community to address the risks of drought and hunger, which then results in recurrent crises.

Resource-Backed Investment Finance in Least Developed Countries

Otaviano Canuto's picture

In recent decades, Least Developed Countries (LDCs) have been using their natural-resources as collateral to access sources of finance for investment, countervailing the barriers they face when accessing conventional bank lending and capital markets.  Depending on whom you ask, such financing models have been alternately vilified and sanctified in the global development debate.

Avoiding the “Planning Paradox”: The New World Bank Strategy Must Take Risk and Uncertainty into Account

Norman Loayza's picture

The following post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.

As the ancient Greek philosopher Heraclitus wrote, the only thing constant is change. And with change comes uncertainty. Faced with choices for bettering their lives, people make virtually every decision in the presence of uncertainty. Young people decide what to study without knowing exactly what jobs and wages will be available when they enter the labor market. Adults decide how much to save for retirement in the face of uncertain future income and health conditions. Farmers decide what to cultivate not knowing with certainty whether there will be enough rain for their crops and what demand and prices their products will command in the market. And governments decide the level of policy interest rates and fiscal deficits in the presence of uncertain external conditions and domestic productivity growth.

Myopia and (dis-)incentives - The political economy of managing risk

Jun Erik Rentschler's picture

The following post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.

It is an old and well known criticism of electoral politics: the conflict between short political mandates and long term objectives. To galvanize political support, policy makers not rarely resort to “benevolent” political measures, such as short-sighted tax reductions or infrastructure investments, which are often more beneficial to their own election polls than to their electorate. Such political myopia is alarmingly common, and stands in the way of effective policy making in the long term interest of people.
Risk management is one of the fields in which effective action tends to be impaired by political myopia. For instance, implementing comprehensive regulation in the financial sector, or imposing stringent environmental requirements on certain industries, would help managing the risks of financial or environmental crises. Similarly, the installation of early warning systems for tsunamis or hurricanes could provide decisive information for preparation and timely evacuation. 

Catastrophe bonds: The international community can facilitate the development of innovative risk management tools

Sébastien Boreux's picture

The following post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.

One thing financial markets are good at is innovating and creating new instruments that meet the ever-evolving needs of investors and economic agents  managing their risks (such as national or subnational governments). In the mid-1990s, after hurricane Andrew and the Northridge earthquake in the United States, it became increasingly clear that some risks were too big to insure with existing instruments. This matters most to governments and insurers who have to pick up the pieces after a natural disaster as the frequency and cost of natural hazards have been increasing over the past few decades.

In the aftermath of a natural disaster, governments have to shift budgetary resources away from new investments for development to relief and reconstruction efforts. For insurance companies, catastrophic events can put pressure on their financial viability. One way to relieve the pressure is to transfer such risks to capital markets. That is how catastrophe bonds (cat-bonds) were born, as financial instruments to further disperse the risk of natural disasters more broadly and use the risk-taking capacity of institutional investors worldwide. 

Seizing Opportunities under Extreme Risks: Fragile and Conflict-Affected States

Inci Otker-Robe's picture

Fragile and conflict-affected countries confront some of the most extreme risks and constraints to their management that, if unaddressed, could create a vicious cycle of poverty, fragility, and conflict with far-reaching implications beyond these states. A well-balanced and collective approach to risk and opportunity can build on the progress made toward better development results going forward.

One thing that fragile and conflict-affected states (FCSs) have in abundance is the extreme risks facing their people. In these environments, consequences of risks materializing are often a matter of life and death. People living in such states make up only 15 percent of the world population, but represent nearly one-third of all people in extreme poverty, one-third of the HIV-related deaths in poor countries, one-third of people lacking access to clean water, one-third of children who do not complete primary education, and half of children dying before reaching their fifth birthday. Only eight of the 36 FCSs have so far met the Millennium Development Goal (MDG) of halving extreme poverty, according to a new World Bank analysis, and the upward trend in the number of poor in FCSs (figure) is expected to take their share in the global poor population to 50 percent by 2015, according to an OECD report. The majority of MDGs in fragile states will not be met by 2015.

The incidence of extreme risks in FCSs is matched by the prevalence of severe constraints on the ability of people to manage risk. Characterized typically by high levels of corruption, weak governance and institutional capacity, an unfavourable environment for doing business and low competitiveness (figure), these states offer limited access to functioning market mechanisms, communities, or governments that provide an enabling environment for managing risk. Three quarters of the limited foreign investment in fragile states go to only seven (resource-rich) states.


Pages