India: World Bank should do more infrastructure funding

The World Bank is under pressure from one of its largest clients to do more infrastructure funding. Via the Wall Street Journal:

The World Bank is working on setting up a global infrastructure facility that would channel funding into much-needed projects, nurturing domestic and global economic growth, India’s finance minister said. 

P. Chidambaram told The Wall Street Journal that the World Bank had done a lot of work on the proposal, and had tasked two of its managing directors to come up with a paper on the subject. The idea was most recently discussed in meetings on Friday morning in Washington, he said.

"I’ve urged the World Bank president that the global infrastructure facility should be set up as early as possible because countries like India require a large amount of finances for infrastructure," Mr. Chidambaram said in an interview on the sidelines of meetings of the Group of 20 leading economies, the International Monetary Fund and the World Bank.

Milan Vaishnav, an India expert at the Carnegie Endowment for International Peace, told me that India’s push for new Bank infrastructure funding likely reflects several developments. Government spending is drying up because of a clampdown on deficit spending. Meanwhile, public-private partnerships to invest in infrastructure haven’t produced the desired results. Given these constraints, Indian officials are hunting for other options to address its enormous infrastructure needs. The much ballyhooed BRICS bank could be an option, but it still exists only on paper (and may never move off the drawing board).   

The World Bank can’t easily ignore the priorities of its largest client, but it faces a much broader question of what sectors to prioritize and how best to pursue its mission. The Bank’s focus has changed significantly over time as the politics and philosophy of development aid have shifted. Shortly after World War II, the Bank prioritized big reconstruction projects (its first loan helped France purchase industrial material, petroleum and coal). The Bank moved into agriculture in the 1960s, and then became much more involved in governance efforts (including anti-corruption) in the 1990s. While the Bank still does some big infrastructure projects (including several large roads projects in India), law, justice and public administration is the largest sector for Bank funding globally.

More infrastructure work makes a lot of sense from the demand side, but it can be problematic from the standpoint of the Bank’s biggest funders. The United States and Europe, in particular, have recently prioritized anti-corruption and the environment, and the Bank has responded. The lender has cracked down on corruption, and new president Jim Kim has also made climate change a priority.

These new imperatives don’t necessarily mesh well with infrastructure projects, which can be environmentally messy. The Bank’s 2010 decision to fund a South African coal power plant was  controversial, and the United States ultimately abstained on the vote. Corruption is also a heightened concern with infrastructure projects. According to Vaishnav, "because these are big-ticket projects, the potential for rent-seeking is significant." The Bank’s largest funders and its largest clients have quite different ideas about how much those kinds of complications should matter.