World Bank chief criticizes Microsoft deal

WASHINGTON, January 19, Reuters World Bank President David Malpass criticized Microsoft's MSFT.O $69 billion takeover of gaming company Activision Blizzard ATVI.O as a questionable allocation of capital at a time when poor countries are struggling to restructure debt and fight COVID 19 and poverty.

Malpass said during a Peterson Institute for International Economics virtual event that more capital needed to flow into poor countries, but these flows have been disrupted by unusually easy monetary policies in developed countries.

He said he was struck by Microsoft's acquisition deal for Call of Duty maker Activision Blizzard. This dwarfed the $23.5 billion in cash contributions agreed in December by wealthier donors to the International Development Association in December, the World Bank's fund for the poorest countries - about $8 billion annually over three years, he said.

You have to wonder: Wait a minute, is this the best allocation of capital? Malpass said of Microsoft's deal. A lot of capital flows are going to the bond market. He said that a very small portion of the developing world has access to bond financing, while too much capital remains bottled up in advanced countries, especially in central bank reserve assets used to back long-term bond purchases.

Last week he called for central banks to cut long term bond holdings to free up lending capital.

That gets you into a situation where a lot of the capital is allocated to already capital-intensive parts of the world -- the advanced economies -- building more and more on top of already heavily built infrastructure and real estate, for example, according to Malpass.

A return to more normal global investment returns is needed to bring more financing to small businesses in the developing world, he said.

There has to be more money and growth flowing into the developing countries in order to address the refugee flow, that malnutrition that's going on, and so on, according to Malpass.