Special Report: Global Financial Crisis

    WASHINGTON, Nov. 14 (Xinhua) -- The Japanese government would become a key founding partner in a World Bank fund by investing 2 billion U.S. dollars to help recapitalize banks in smaller emerging markets, the World Bank said on Friday.

    The Japanese contribution would be the first to the fund, which was announced this week by World Bank President Robert B. Zoellick as part of a larger Bank Group response to the crisis that includes a substantial increase in financial support for developing countries.

    The fund aims to inject capital into banks in smaller emerging markets, which may suffer as investment flows decline in the wake of the global financial crisis. This would particularly hurt small and medium-sized enterprises.

    Japan's investment is a sign of the strong partnership between Japan and the World Bank, said the bank in a statement, noting the contribution would be made through the Japan Bank for International Cooperation (JBIC) and would mark the successful launch of the fund. The fund is subject to the approvals of both IFC and JBIC boards.

    "We highly appreciate the World Bank Group's response to the financial crisis," said Japanese Finance Minister Shoichi Nakagawa, who met with Zoellick earlier Friday.

    "This initiative to recapitalize banks is similar to the domestic measures we are taking to stimulate the Japanese economy, especially with regard to supporting small and medium-sized enterprises. This further strengthens the relationship between the government of Japan and the World Bank Group as well as JBIC and IFC (International Finance Corporation)," he said.

    "I am delighted to be able to announce Japan's contribution for this fund, which I believe will help significantly in shoring up banks in poor countries and will ultimately protect the poorest from the impact of the global financial crisis," said Zoellick.

    IFC, the member of the World Bank Group focused on private sector development, expects to invest 1 billion dollars of its own money in the fund.

    IFC estimates that a fund of 3 billion dollars would have a leveraged impact of around 75 billion dollars as others co-invest with the fund, and the banks receiving capital would be able to lend to their clients at greater levels.

    In smaller, poorer countries these amounts could have a significant effect on the banking system and economy and help prevent systemic breakdowns and reduce the impact of the crisis on the poor.

    Zoellick announced earlier this week that the World Bank would substantially increase financial support for developing countries, including the launch or expansion of four facilities for the crisis-hit private sector that is critical to employment, recovery and growth.