The World Bank Needs to Join the 21st Century

The next president of the world’s largest development organization needs to chart a new direction for a new era.

People walk past the World Bank Group's headquarters in Washington, D.C., on May 3, 2013. (Brendan Smialowski/AFP/Getty Images)
People walk past the World Bank Group's headquarters in Washington, D.C., on May 3, 2013. (Brendan Smialowski/AFP/Getty Images)

Nearly two decades into the 21st century, the World Bank remains a 20th-century institution. In recent years, its reputation has faded and its influence diminished—the natural outcome of the rise of China and other emerging markets and the increasing access of even the poorest countries to borrowing on the private capital market. The current World Bank president, Jim Yong Kim, essentially acknowledged his own institution’s reduced importance with his preemptive resignation, effective Feb. 1, to take a job with a private equity firm.

The only way that Kim’s successor—whoever that ends up being—can succeed is by recognizing that the institution needs a new direction to match this new era. The World Bank can no longer afford to think of itself as a routine international lender. Instead, it must adapt to the new challenges the world faces.

Among this century’s existential global threats is climate change. The World Bank’s next president needs to prioritize financing projects that reduce climate risks. The World Bank may be the only institution with the global reach and the legal, financial, fiduciary, and technical know-how to take the lead in this effort.

Under Kim, the World Bank talked the talk on climate, but any impact has been incremental at best. It’s now past time to walk the walk. The World Bank is the institution best placed, combining its own capital and its credibility with potential private and public contributors, to ramp up financing to help emerging markets combat climate change. The new president should negotiate with shareholders to create a new facility that would heavily subsidize climate-friendly loans—for example, to encourage China and India to switch faster from coal to hydropower, natural gas, and renewables; to help Bangkok, Dhaka, and Lagos invest massively in urban subway systems to get cars off the roads; and to help Indonesia and Brazil aggressively tackle the bribery and corruption that are fueling deforestation. A dedicated facility with $10 billion a year would be a solid start to build on.

The World Bank must also find fresh approaches to achieving the Sustainable Development Goals that the United Nations has set for the year 2030. The development community, for example, had hoped to meet the global goals for infrastructure by leveraging billions of public dollars to attract trillions of private dollars from institutional investors for projects that promised long-run financial returns. This is the hope that Kim referred to in his job switch to a private equity fund specializing in clean power.

But so far, despite much talk, the trillions aren’t flowing. To play its part, the World Bank needs to shift, especially in its private lending arm, from direct lending to mobilizing private investor capital. That will require the next president to champion changes in the rules and incentives inside the bank. Shareholders need to be persuaded to support better stretching of the bank’s existing capital as well, including by agreeing to a bigger and more active insurance arm at the bank. To some extent, all this will involve pushing on an open door; resistance inside and outside the bank to this shift in focus is not about whether to do so but how and at what pace and taking what kind of risk.

Then there is Africa, surely of all regions the single biggest development challenge in this century. Africa is where the world’s poorest are increasingly concentrated and where, in contrast to South Asia, the population is mostly growing faster than income.

But investing well in Africa, and particularly in its fragile states, is hard, even where country governments are willing to take on tough political and anti-corruption reforms to ensure investments contribute to long-run growth. The World Bank is now at least six times richer in funds to invest in Africa’s poorest countries than the African Development Bank. But the African bank is more owned and trusted by African borrowers and has untapped potential to work with borrowers on tough reforms.

What makes sense is for the two banks to cooperate in a big way, combining World Bank financing with African Development Bank regional ties. The World Bank has a history of arrogance and competition with the regional development banks, and Kim resisted shareholder efforts to engage with his regional counterparts. The next president must change that—especially in the case of Africa.

Finally, China. Beijing is now the biggest—by far—lender to developing countries, with its China Development Bank capitalized at many multiples of all the legacy multilateral banks. Its Belt and Road Initiative involves big loans for infrastructure to relatively poor countries already vulnerable to debt distress, raising concern that the initiative is a vehicle to buy power and influence independent of the merits of the projects being financed. But the World Bank and the other multilateral banks cannot satisfy alone the demands of poorer developing counties for financing critical infrastructure; Africa especially needs the financing China can provide.

The next World Bank president should be a leader in working out with the Chinese their greater adherence to best lending and development practices, persuading them that doing so is in their own enlightened long-run self-interest. African and other governments are increasingly wary of Chinese deals—a fact that China seems to have noticed. The new Chinese-led Asian Infrastructure Investment Bank has made it a point to adopt the World Bank’s social and environmental guidelines for its projects.

Finally, the next president should position the World Bank as an independent advisor and honest broker for developing countries otherwise disadvantaged in the market-based global economy. This also would not be entirely new—but it would require sustaining and upgrading the bank’s research, data collection, and general analytic resources to shed light on, for example, the costs to the poorest countries of tax havens, aggressive marketing of cigarettes, and the global pharmaceutical industry’s lobbying for trade agreements to limit access to new medicines.

Insiders understand the potential diplomatic trade-offs for the bank: How can it sustain critical U.S. financial support, for example, while criticizing U.S.-based industries? That trade-off explains the tradition of electing an American as president. But the geopolitics are shifting; the Trump administration is explicitly putting America first, ignoring the multilateral rules that provide some protection for the smallest and weakest economies and the international agreements on human rights protections meant to shield the world’s most vulnerable people—including those escaping conflict and war at home.

The logic of an American president to ensure sustained U.S. support for the World Bank is no longer as clear as it has been. In the short run, the Trump administration’s America First stance makes it harder for it to buy support for a U.S. candidate who does not compete well on merit with highly qualified non-American nominees (as Kim did not against Ngozi Okonjo-Iweala and José Antonio Ocampo in 2012).

American or not, the next president needs to be a person who can still win support for the bank with future U.S. administrations and on Capitol Hill—as well as with the Chinese and other emerging market borrowers. He or she needs diplomatic and negotiating skills to raise new capital to make the bank a leading financier of climate, health, and other global goods; financial know-how and management skills to transform the bank into a major player in mobilizing trillions of private dollars for infrastructure in poor countries; savvy to sustain rich country support while fighting in the global arena for rules and policies that protect developing countries from the injustices of a poorly managed global market; and deep-seated passion about and understanding of the complexities of development.

It’s time for a merit-based candidate, male or female, American or not. A woman from a developing country with the experience, integrity, and savvy would, in my opinion, be ideal. But the ideal need not be the enemy of the very good.

Nancy Birdsall is the founding president of the Center for Global Development.

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