In Support of World Bank Capital Replenishment
Global leadership does not come for free.
“The person who agrees with you 80 percent of the time is a friend and an ally — not a 20 percent traitor.” So goes a famous saying, often attributed to Ronald Reagan. It sums up how I feel about the World Bank’s upcoming International Development Association (IDA) account replenishment — while it is not perfect, it is a good deal for the United States and should be approved by Congress.
The hat passing exercise for the IDA may seem like a fringe topic given the host of serious global challenges we face today, but a successful replenishment round would help us respond to conflict, instability, and refugee crises around the world. As I have said before, the Bretton Woods institutions and multilateral development banks are force multipliers for a U.S.-led, rules-based global order. These institutions are at their best when the United States takes an active leadership role.
For those of you who are not familiar, the IDA replenishment process bears some explaining. Every three years the IDA account — which provides soft loan assistance to the world’s 77 poorest countries — requires a fresh round of money to continue operation. These replenishments provide a moment of accountability for shareholders to impact World Bank policy and operations, but the accountability flows in both directions. The “ask” for money from shareholders for the 18th IDA replenishment offers some new and overdue adjustments to the World Bank’s almost 60-year-old business model.
In the face of global challenges like the ongoing refugee crises, growing conflict and fragility, and resource constraints in traditional donor countries, the Bank needs to carefully assess its priorities and business practices. The United States was the driving force behind the World Bank’s creation at the close of the Second World War, and it is in our interest to take the lead in shaping the institution’s response to the challenges of the 21st century.
As a Republican, there is a lot to be happy about in this latest IDA replenishment. First, our money is leveraged by other people’s money. Second, we want developing countries to plug into an American form of globalization and the World Bank, the International Monetary Fund, and other regional development banks are cost effective support mechanisms for an American led form of globalization.
Specific to this new round are some important accomplishments, including:
Conflict and Fragility: A small number of fragile and conflict-affected states increasingly impact global stability and prosperity. Historically, the World Bank’s incentives, instruments, and people have not been set up for these types of environments. The World Bank will significantly increase its commitments to fragile and conflict-affected states. When the World Bank spends money, the United States gets to spend less or can spend that money on other things.
Private Sector Engagement: Despite growing recognition of the important role played by the private sector in creating jobs and broad-based economic growth, IDA funding has not sought to work closely with the private sector and instead has been programmed through government ministries. For at least a decade there has been a call for a “private sector window” for IDA, and this round will have monies that will be used for important but higher risk private sector transactions in poor countries. IFC, the private sector arm of the World Bank, will be very involved.
Governance: There is an increased recognition that improving governance is central to development, and IDA funds will be deployed to a series of areas to improve governance. Capable and competent governments create the preconditions for economics growth; donors can support this process by working to improve public financial management and local tax systems so that developing countries themselves take the lead on public goods delivery.
Doing Business Index: Every time the World Bank makes a request for new funds like the IDA replenishment, Republicans should always ask: “Is ease of doing business being messed with?” A few years ago, the Bank’s ease of doing business index came under fire by a host of countries (led by China) that did not like where they fell in the rankings. Fortunately, this effort was thwarted. As I have written before, the doing business program is one of the World Bank’s most important initiatives, and will not be watered down or scuttled in coming years.
Sadly, it is not all good news for Republicans when it comes to the World Bank. One example is the World Bank’s policy of not supporting coal projects following pressure from President Barack Obama and his administration. Coal is a primary source of power for many developing countries (just google “new coal projects to come on line in Asia” and you will get the idea about how big coal is for the energy future of Asia). If Organization for Economic Cooperation and Development-backed institutions will not support coal projects, other financiers will. Specifically, the Chinese will fund coal projects that use older and dirtier technologies.
The World Bank could do yet more in the fragile and conflict-affected space. Increasingly, the majority of the world’s development challenges are focused in these settings. When the World Bank creates a vice presidency focused on these issues, then we know that the incentives are aligned within the bureaucracy.
The United States is behind on its financial commitments to the World Bank by about $1 billion, a situation that undermines our credibility and leadership within the institution. Falling into arrears on our World Bank obligations is not without consequences. For one, it is difficult for the United States to ride herd on the Bank’s board when it comes to issues such as Zika, Ebola, the Northern Triangle, peace in Colombia, or standing up Ukraine in the face of the Russians when we are deadbeats on IDA commitments.
While it can be hard to measure, this kind of lapse makes it harder for us to lead: Our calls do not get returned as fast by bank bureaucrats or by other shareholders. Being deadbeats on IDA limits our influence within the multilateral system. For the United States to call on others to meet their global commitments, it must first do so itself. Worse, if we are not vocal and responsible leaders on the global stage, other countries — sometimes friends and sometimes adversaries — will step in to fill the void. For these reasons among others, the United States needs to be prepared to step up and support the IDA replenishment.
If there are any holdups in approving the IDA replenishment, the blame will be laid at the feet of the Republican Congress. That is wrong. It is an open secret that the Obama administration has terrible relations with members of Congress on both sides of the aisle, but it needs to engage legislators in a meaningful way to help sell the new IDA replenishment. Others should help in this process, including the aid advocacy community, but the administration will need to take the lead. This will require a sustained effort, not just a few phone calls.
U.S. Treasury Secretary Jacob Lew also has a job to do on these global leadership issues. Lew is perceived as not having made the phone calls or done the meetings necessary for obscure but important things such as IMF quota reform and money for the World Bank. In the 1980s and 1990s, it was part of the job description of a U.S. Treasury secretary to sit with groups of members of Congress to educate and engage them early. A half-dozen phone calls at the 11th hour, which is the modus operandi of the current Treasury secretary, does not cut it.
Global leadership does not come for free. Things like IDA replenishment are the “condo fees” that the United States pays to maintain its influence and in the international system. The world depends on the United States to pay the costs of global leadership, and it is in our interest to do so.
Photo credit: PER-ANDERS PETTERSSON/Getty Images