How (and how not) to reform the World Bank

How (and how not) to reform the World Bank

By Luke Vargas   
Published
The headquarters of the World Bank Group in Washington D.C. Courtesy: Franz Mahr / World Bank
The headquarters of the World Bank Group in Washington D.C. Courtesy: Franz Mahr / World Bank

President Trump wants one of his top China trade enjoys, David Malpass, to lead the bank. How could Malpass shake up international finance?

President Trump has named his selection to lead the World Bank.

David Malpass is a veteran of Ronald Reagan’s Treasury dDepartment and the George H. W. Bush’s State Department, but it’s his more recent criticisms of the World Bank’s size and of multilateralism in general that are turning heads.

With America already pulling back from the United Nations, NATO and other multilateral institutions, is the World Bank next?

This week on ‘Wake’ we’ll look at the history, present and future of the World Bank and consider how it could change in the Trump era.


“How (and How Not) to Reform the World Bank”

Duration: 26:00
Recorded: Thursday, Feb. 14, 2019

Guests:

  • Nancy Birdsall, founding president, Center for Global Development
  • Catherine Weaver, professor of public policy, Lyndon B. Johnson School of Public Affairs, University of Texas at Austin

Highlights:

How could David Malpass change the World Bank, and is he a lock for the job?


Catherine Weaver: “I don’t think it’s a foregone that he will be selected. There’s still one month left in the nomination period and as we’ve seen in 2012, contending candidates have emerged.

In my personal opinion it would be a hard pass on Malpass. He simply is a poor candidate for the job given his overt partisanship and his attitudes toward multilateralism, which make him a pretty poor fit for leading one of the preeminent multilateral development institutions in the world today.”

Nancy Birdsall: “I’m afraid I may agree with Kate that he’s a poor candidate, particularly because he’s not qualified on one of the five criteria that the World Bank board  representing the countries that are shareholders has set out, and that criterion is that the person be a supporter and keen on multilateralism itself and on multilateral cooperation.”

Why has every World Bank president been American?

Nancy Birdsall: “The history is that it is because the U.S. was such a dominant power at the founding of the World Bank and the IMF. At that time they in effect made a deal, a kind of grand bargain, with the Europeans that the Europeans would always support an American to head the World Bank and the Americans would always support a European to head the IMF, the International Monetary Fund. That duopoly has existed for six or seven decades. So it’s likely to go on, but it’s true as Kate said that there were other candidates in 2012.

I would say that this problem has become a problem — that the U.S. has a sort of lock-hold on the presidency of the World Bank — because there’s no reason even within the U.S. for an administration to worry about picking the best possible candidate who is American. There’s no competition at any level.”

World Bank President Jim Yong Kim (5th from right) and Chinese Finance Minister Xie Xuren (6th from right) in a group photo at the signing ceremony of the China-World Bank Knowledge Hub for Development. Nov. 27, 2012. (Courtesy: Wu Zhiyi/World Bank
Photo ID: 05-Group photo-knowledge hub launch)

How is China’s emergence as a global lender being felt at the World Bank and within the White House?

Nancy Birdsall: “In the last round of [internal World Bank rule-setting in 2018] the United States, and actually David Malpass, pushed very hard for the World Bank to reduce lending to China, not just cut it off — which would have been very complicated politically and even in terms of the portfolio — but to charge China more than it charges countries like, say, Costa Rica or Mexico. But that makes a lot of sense. So these are the kinds of changes that are going to raise tough issues in the 21st century: how much more to charge questions? For how long? And should China, because it has its own money, it has its own development, should it actually stop borrowing altogether?

On the other hand, if we want to lend to China to induce certain parts of China — provinces or states or local governments — to move from, as I use the example, move from coal to clean power, it’s a shame to lose that opportunity. The World Bank would know how to do it, from a technical and legal and fiduciary point of view.”

Catherine Weaver: “I would also say on China, we shouldn’t neglect the fact that China has been a rapidly rising power within the World Bank, and after the last major voting reform effort in 2012, China became the third-largest shareholder in the World Bank’s executive board, with nearly five percent of the overall voting power.

The U.S., on the other hand, has declined in terms of its relative weight and influence over the World Bank over the last 60 years. It tenuously holds now about 16 percent of the vote, but it’s kind of hard to argue that in the long term the U.S. is going to continue to have a really dominant financial power over the bank. That’s in decline.

China is rising and the World Bank is savvy about this, to the point where it actually works consciously with the Asian Infrastructure Investment Bank — the new Chinese-led multilateral institution — and they co-finance most of the loans out of the AIIB, so the World Bank maintains a voice in that process of Chinese-led development.”

The World Bank will stop financing upstream oil and gas projects in 2020 as a part of a shift to support clean energy. Courtesy: Jutta Benzenberg/World Bank
The World Bank will stop financing upstream oil and gas projects in 2020 as a part of a shift to support clean energy. (Courtesy: Jutta Benzenberg/World Bank)

The U.S. is critical of what it calls China’s “predatory”  global lending practices. Could the U.S. push the World Bank to become more anti-Chinese in the coming years?

Catherine Weaver: “I think there is some logic behind it, but it quickly becomes dismantled when you think about how China may react to a World Bank president that has been overtly hostile for China’s interests.

In this case we have to recognize that China has some options to exit the World Bank. They’re now leading the Asian Infrastructure Investment Bank — the new development bank — and it’s probably in the U.S. long-term interest and other major power interests to keep China within the fold of the World Bank, where you can continue to have real multilateral conversations and keep China socialized within the norms that the World Bank has cultivated over the last 60 years.

So bringing on a president of the World Bank that openly ostracizes China is, in my mind, kind of a strategy that’s based upon the strategy of cutting off your nose to spite your face. It may serve short-term U.S. political interests, but it’s not in the long-term interests of the U.S. for China to walk away.”

Nancy Birdsall: “I think another way to put it or another example is China does have this Belt Road initiative, in which they’re imposing high levels of debt, in many cases on poor countries. Who is better, what institution is better at working with China?

They want to eventually be seen as having global leadership. The World Bank provides the setting and the multilateral cooperation to work in the weeds with the people at places like the China Development Bank — which is much bigger than the World Bank and the Asian Infrastructure Bank — to bring them into the fold, as Kate said. So that’s a worry, I would say, about the possible election of the U.S. candidate, David Malpass. He’s not the right person for that negotiation.”


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