'The worst is yet to come'

In an exclusive interview, former World Bank chief James Wolfensohn warns that the global economy is facing a long, steep road to recovery. And in the Middle East, the spectre of youth unemployment represents a grave threat to the development of Arab nations.

When you get to a certain age, you tend to be more pessimistic," says James Wolfensohn, raising a rueful smile, and leaning forward conspiratorially in his chair. "I am apprehensive, I have to say. It just doesn't feel to me yet that we're through this crisis; I don't think that we've seen the worst."

At 75 years of age, Wolfensohn has certainly earned the right to be pessimistic. And having spent ten years as president of the World Bank, between 1995 and 2005, he has also earned enough respect to ensure his wariness will be heeded by economists and policymakers across the globe.

"My judgment is that this is not a downturn that will have a v-shaped recovery, or even a u-shaped recovery," the veteran banker adds. "It's more likely to be a long, slow grind out of it."

In the Middle East, the recovery will be even more protracted and far more painful for those countries who fail to address a fundamental inevitability: that the region's population is set to double over the next 25 years.

"In the Middle East, the issue of unemployment and its impact on economic development is even more important than the price of oil," he says. "It's not an issue that you can just stand back on and stay, ‘well, this will be covered by the wealth of the region'. Because wealth goes a certain distance but it doesn't go the distance of giving satisfaction to young people."

To this end, Wolfensohn is in Qatar to address the second annual Silatech summit. The foundation - chaired by HH Sheikha Mozah bint Nasser Al Missned, wife of the Emir of Qatar - aims to improve the social and economic status of young people in the Arab world, and Wolfensohn delivers an impassioned plea for the creation of employment opportunities for young people across the MENA region.

"Youth unemployment is a huge barrier to development for the Arab world," Wolfensohn argues. "At the moment Arab nations are not creating nearly enough jobs. They don't have the industrial use of people, and they're importing labour because typically it's cheaper, and the locals don't want to do it.

"At this moment, economic planning has not provided jobs for young people who constitute 50 percent of your workforce: over 200 million people are eligible to work, and 100 million of them are within the age group of 15 to 29," Wolfensohn explains. "So we have a whole group of people who have expectations which exceed the reality of opportunity."

According to Wolfensohn, the Middle East needs to create up to seven million new jobs every year in order to satisfy demand. The region is missing this target by some four million jobs per annum, building a backlog that threatens to ignite unrest among young Arabs.

"It's not good for the youth and it's not good for society, because you have a group of young people who are frustrated, instead of being able to put their creative energies to work for society," he warns. "Experience elsewhere shows that if you don't deal with the problem, you generally have some form of unrest, and so it's probably not unlikely that you will face substantial problems with the youth."

Wolfensohn faced no such obstacles to advancement growing up as a boy in Sydney, Australia. His parents had emigrated from the UK during the Great Depression of the 1930s, and Wolfensohn fenced for Australia at the 1956 Olympics, also becoming an officer in the Royal Australian Air Force.

"I was lucky in Australia because it's a country where there are very few barriers, where there was an opportunity to benefit from an education, and to dream big dreams," he recalls. "That is true in many countries, and what is important is not to limit your ambitions, but to set objectives and set about achieving them. In my experience, it is possible to take yourself where you want to go."

Wolfensohn duly took himself to the prestigious Harvard Business School, and then to the helm of the Word Bank via stints at investment banking behemoths Schroders and Salomon Brothers. And today, as he looks back on a remarkable career in top-level finance, the wheel has turned full circle; a new generation is now facing its own great depression.

"This downturn is the most serious I've seen in my working lifetime, which is over 50 years," he sighs. "Certainly China and India seem to be getting through this at the moment because of some exports, but largely because of their significant domestic markets. So that's 40 percent of the population of the world.

"But when you come to that portion of the world which is responsible for some 75 percent of global GDP, and you look broadly at the US and then Europe, the situation is very difficult," he continues. "In the US there is negative growth, and a potential accumulated deficit of $4 to 5 trillion over the next couple of years, which has to be financed. That puts pressure on the dollar and the US, while Europe appears now to be recognising that they have problems which are not trivial."

According to Wolfensohn, there are two broad schools of thought: that by the end of 2009 we will witness an upturn and subsequent recovery; and then those braced for further unpleasant surprises, particularly in the financial sector. Though he takes no satisfaction in it, the former World Bank chief is firmly in the latter camp, and doubts whether the stimulus packages put together by US and European governments will be enough to resuscitate flatlining economies.

"We're not seeing the stimulus packages having the effect that you'd hope, because people are saving," he says. "In the US the stimulus that came out was used 80 percent to pay off credit card debt and for savings, 20 percent was spent. We're in a different world in terms of the reaction to stimulus, and we're in a different world because the US, for the last few years, thought that you could borrow forever."

Whether president Barack Obama's stimulus packages are sufficient remains to be seen. But with regards to Middle East policy at least, Wolfensohn is convinced the new administration is on the right road.

And it is a battleground he knows well: after Wolfensohn's departure from the World Bank in April 2005, he assumed the post of special envoy for Gaza disengagement for the Quartet on the Middle East. He lasted just a year in the role, quitting in frustration at the obstacles strewn across the road map, but feels that the Obama administration is capable of progress where many others have faltered.

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