WEBVTT - World Bank President Talks Strait of Hormuz

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>We're join now on Bloomberg TV and Radio by aj Banga,

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<v Speaker 2>the President of the World Bank, who was here with

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<v Speaker 2>us in our Washington, d C studio. Thank you for

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<v Speaker 2>your time. You obviously are joining us at a very

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<v Speaker 2>tense moment in the Middle East, specifically as we have

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<v Speaker 2>a lack of clarity as to whether or not the

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<v Speaker 2>ceasefire between the US and Iran is going to be

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<v Speaker 2>one that can last, and whether it will result in

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<v Speaker 2>the lasting reopening of the Straight of Horror Moves, which

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<v Speaker 2>is obviously critical for global energy flows and the economy.

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<v Speaker 2>As a result of that, how are you considering the

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<v Speaker 2>potential economic cascading ripple effects of if a Straight of

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<v Speaker 2>Horror moves that may not be as free flowing as

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<v Speaker 2>it was prior to this conflict beginning.

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<v Speaker 1>So thank you for having me. And that's kind of

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<v Speaker 1>the questions that's in everybody's mind. And we've got a

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<v Speaker 1>Spring meetings coming up next week and I'm sure to

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<v Speaker 1>be topic number one. The reality is, no one knows.

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<v Speaker 1>The two dimensions are kind to solve ful one is

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<v Speaker 1>the length and duration of the day, and the second

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<v Speaker 1>is right now, while there is some kind of a ceasefire,

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<v Speaker 1>you can make a guess, So what kind of damage

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<v Speaker 1>has happened to facilities if the conflict were to restart,

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<v Speaker 1>then what kind of damage continues to happen to energy

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<v Speaker 1>production facilities is unclear. Those two dimensions are what payre using.

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<v Speaker 1>We've got a scenario that says that if it comes

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<v Speaker 1>to a ceasefire now and three to four months of normalization,

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<v Speaker 1>we have some impact on growth, some impact on inflation,

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<v Speaker 1>both on the wrong side. But if it comes back

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<v Speaker 1>into a conflict and continues after that, and this becomes

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<v Speaker 1>a six to eight month impact on before it normalizes,

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<v Speaker 1>not the conflict but the downstream effects, and that's a

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<v Speaker 1>very different impact on growth inflation. So that's how we're working.

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<v Speaker 2>In And which of those risks, in your mind is

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<v Speaker 2>greater right now on the growth side or on the

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<v Speaker 2>inflationary side.

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<v Speaker 1>Well, I would say if you were to in the

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<v Speaker 1>emerging markets, where my focus is, if you are to

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<v Speaker 1>focus right now, you should be more concerned about inflation

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<v Speaker 1>because that's the immediate impact you're feeling of the disruption

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<v Speaker 1>in all these supplies, whether it's oil or gas, or

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<v Speaker 1>sulfur or helium, or fertilizer or downstream chemicals. But when

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<v Speaker 1>you go out further and if you're managing to get

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<v Speaker 1>that inflation under control, then the next big thing to

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<v Speaker 1>do would be to worry about your growth again. But

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<v Speaker 1>they're both important. I just prioritize inflation before I went

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<v Speaker 1>chasing down the growth poth well.

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<v Speaker 2>And it raises the question, especially for some of these

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<v Speaker 2>developing economies, if they're feeling the effects of this, their

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<v Speaker 2>room to respond from a fiscal policy perspective, how much

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<v Speaker 2>ability to do that is there's necessary.

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<v Speaker 1>Absolutely, So both the IMF and US and other institutions

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<v Speaker 1>like ours are working through in what ways can we

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<v Speaker 1>be helpful to these institutions, to these countries as they respond.

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<v Speaker 1>So in our case, we have something called a Crisis

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<v Speaker 1>Response Toolkit, which was launched over a couple of years ago,

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<v Speaker 1>and what that does is ten percent of the undispersed

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<v Speaker 1>balances or approved projects in a country, any project can

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<v Speaker 1>be diverted for purposes of crisis management under the control

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<v Speaker 1>of that country's finance ministry. So if you put all

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<v Speaker 1>that together, you add in a few other projects where

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<v Speaker 1>they could do this and other work we're doing across

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<v Speaker 1>our emerging markets, twenty to twenty five billion dollars of

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<v Speaker 1>liquidity could be made available very quickly to our clients

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<v Speaker 1>if this continues into that other scenario of longer term

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<v Speaker 1>and we're trying to see if you can get to

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<v Speaker 1>another somewhere between fifty and sixty billion of capacity to help.

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<v Speaker 1>Having said that, or make sure you understand one thing,

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<v Speaker 1>which is, you know, what we do right now has

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<v Speaker 1>to be done in a way in countries that it's

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<v Speaker 1>targeted carefully and it's clearly temporary and transparent, because down

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<v Speaker 1>these countries in the headroom to let's say, do a

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<v Speaker 1>permanent fuel subsidy, much better than that is to do

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<v Speaker 1>targeted subsidies to those who are the most affected in

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<v Speaker 1>the poorer sections of society, preferably through digital distribution. Means

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<v Speaker 1>many countries across the emerging markets, not just in India

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<v Speaker 1>or parts of Africa, but many countries now I have

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<v Speaker 1>digitized ways of being able to just you targeted benefits

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<v Speaker 1>to people, and that kind of thing is what I'm

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<v Speaker 1>referring to, rather than blanket subsidies.

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<v Speaker 2>I also wonder about the effort you think, if at all,

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<v Speaker 2>that the World Bank is going to need to be

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<v Speaker 2>involved in simply reconstruction in the Middle East. I know

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<v Speaker 2>there is a role to play specifically in the reconstruction

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<v Speaker 2>of Gaza, but we're now looking at destruction in Lebanon.

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<v Speaker 2>We've seen infrastructure damaged in Iran. How active do you

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<v Speaker 2>expect you will have to get in the region as

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<v Speaker 2>a whole.

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<v Speaker 1>Well, we started as the International Bank of Reconstruction and Development,

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<v Speaker 1>so reconstruction is what we do. I think Ukraine, that's

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<v Speaker 1>the other one. Yeah, Gaza, Ukraine is much bigger in

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<v Speaker 1>terms of dollar value than these other ones currently put together.

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<v Speaker 1>Depends how far the Middle East goes. Remember that the

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<v Speaker 1>richer countries in the Middle East are not going to

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<v Speaker 1>need I help on monetary terms. They can certainly use

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<v Speaker 1>our help in knowledge and expertise, but not monetary. In fact,

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<v Speaker 1>they're great partners the other way for us. They put

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<v Speaker 1>money into it us to help the developing word. But

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<v Speaker 1>in Ukraine and Gaza and the like, it's a way

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<v Speaker 1>and Lebanon it's very different. Yes, I presume that we'll

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<v Speaker 1>have a role to play there. You know, we're actively

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<v Speaker 1>involved with the Ukraine and Gaza anyway.

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<v Speaker 2>And you mentioned a dollar value there, and I'd like

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<v Speaker 2>to focus on that idea of this being lending done

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<v Speaker 2>in US dollars, because there's a conversation now that if

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<v Speaker 2>Iran is able to charge a toll in the straight

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<v Speaker 2>up her moves, it may do so in the yuan

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<v Speaker 2>rather than the dollar, and whether that precipitates a decline

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<v Speaker 2>in the dollar that has been long called for and

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<v Speaker 2>not necessarily materialized. Is the reserve currency. Is it your

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<v Speaker 2>expectation that in even the nearer intermediate term the World

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<v Speaker 2>Bank is going to be less doing less lending in

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<v Speaker 2>US dollars or do you see that as overblown?

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<v Speaker 1>Not really, But the last so many years we've been

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<v Speaker 1>lending in two or three currencies, principally for actually the Euro,

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<v Speaker 1>the yen, the pound, and the US dollar, and that

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<v Speaker 1>mixes kind of strayed pretty stable over the years. There

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<v Speaker 1>are some very little demand from countries to borrowing in

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<v Speaker 1>other currencies. It could change. You never say never. But look,

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<v Speaker 1>I've been back thinking a long time. And the thing

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<v Speaker 1>about a currency is that you have to believe that

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<v Speaker 1>it is fully predictable to you in the sense of

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<v Speaker 1>no management of the currency beyond what's transparent. Nothing is

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<v Speaker 1>predictable in currency. It can go up and down based

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<v Speaker 1>on how markets think. But you don't want you want

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<v Speaker 1>the country to be fully free and floating for you

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<v Speaker 1>to know that it's a currency you would hold and

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<v Speaker 1>trade and do business in. And I think that part

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<v Speaker 1>is still very much a challenge for many other currencies.

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<v Speaker 1>Could there be bilateral deals that happen, They're already happening,

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<v Speaker 1>and that could happen, but that's not large enough to

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<v Speaker 1>challenge where the dollar stands and sets.

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<v Speaker 2>You talk about ups and downs and financial markets and

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<v Speaker 2>something else that was a cause of great volatility even

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<v Speaker 2>prior to the war with Iran. Beginning was concerned about

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<v Speaker 2>the disruption that we're going to see from artificial intelligence,

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<v Speaker 2>specifically in certain industries and in certain labor markets and

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<v Speaker 2>demand for labor, especially as you're considering developing economies in

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<v Speaker 2>which a lot of work has been outsourced that maybe

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<v Speaker 2>susceptible to being replaced by artificial intelligence. How do you

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<v Speaker 2>prepare the world for that, Well.

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<v Speaker 1>The two topics, said, the first is the creation of

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<v Speaker 1>jobs and roles in the developing world, which is actually

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<v Speaker 1>one of the focus of our spring meetings, and there

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<v Speaker 1>the issue is one point two billion young people in

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<v Speaker 1>the developing world, are going to become eighteen years of

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<v Speaker 1>age in the coming fifteen years. And right now those

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<v Speaker 1>very same countries are projected to create four hundred plus

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<v Speaker 1>million jobs. Now these are focus economists. Make them people

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<v Speaker 1>like us. You should treat them with a pinch of salt.

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<v Speaker 1>But it could go up or down, but not by

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<v Speaker 1>eight hundred million. So the point is there's both a

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<v Speaker 1>challenge and our opportunity. There is those people have productive jobs,

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<v Speaker 1>productive contribution to society, hope and dignity. Then you get

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<v Speaker 1>great markets for our future products, technology, intellectual property, you know,

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<v Speaker 1>everything else. But if you don't, then you have instability

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<v Speaker 1>and illegal migration. We're focused on changing that trajectory towards

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<v Speaker 1>the positive by focusing on five sectors. Most of are

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<v Speaker 1>actually not reliant either in global trade to be the

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<v Speaker 1>most important thing, or for that matter, directly impacted by

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<v Speaker 1>the kind of AI we are discussing, which is ERM

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<v Speaker 1>and generational AI. In fact, the sector is we're talking

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<v Speaker 1>about primary healthcare. Agriculture is a business for small farmers.

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<v Speaker 1>These are things that can be benefited by what I

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<v Speaker 1>call small AI, which is AI delivered at the edge

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<v Speaker 1>with local compute. So illiterate farmer who is able to

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<v Speaker 1>use a phone to point at the disease in the

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<v Speaker 1>back of a plant and not know what the name

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<v Speaker 1>is because she can't pronounce it, but it can tell her.

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<v Speaker 1>This in secticide from your cooperative for twenty five rupees

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<v Speaker 1>in Uta, Pradesh is your answer. That's useful AI. It's

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<v Speaker 1>true of healthcare, it's true of education and so on.

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<v Speaker 1>So the applications of this kind of AI will actually

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<v Speaker 1>be great answers for the emerging markets. And that's the

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<v Speaker 1>way to see this from the other lens as compared

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<v Speaker 1>to only the lens of a threat.

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<v Speaker 2>Thward to hearing more about that at the meetings next week.

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<v Speaker 2>Ajay Bonga leading the World Bank and here with us

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<v Speaker 2>in our Washington, d C studio, thank you so much

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<v Speaker 2>for joining us.