Will David Malpass Run the World Bank or Ruin It?

The Trump administration continues chipping away at the multilateral institutions it derides as “globalist,” preparing to nominate as soon as Wednesday David Malpass, a World Bank critic, to become the next president of that very institution.

Malpass, currently the undersecretary for international affairs at the U.S. Treasury Department and a former chief economist at Bear Stearns investment bank, has faithfully echoed President Donald Trump’s denunciations of multilateralism run amok, taking aim at institutions such as the World Trade Organization and the International Criminal Court.

“Now is an opportune time to discuss the concerns about the rapid increase in globalism,” Malpass said at an event at the Council on Foreign Relations in late 2017, adding that “multilateralism has gone substantially too far—to the point where it is hurting U.S. and global growth.”

When it comes to the World Bank in particular—the world’s biggest development bank— Malpass in his time at Treasury has tried to slow down the its ability to raise more capital and to limit the number of countries it lends to.

He argues that revolutionary developments in capital markets over the last generation mean that much more private capital is available to more countries at reasonable rates for their development needs, and that there is a smaller, more targeted role for the World Bank. He’s been especially critical of the fact that China, the world’s second-largest economy, is the World Bank’s biggest borrower. He has also criticized the bank’s lending criteria, while taking potshots at what he sees as a bloated staff with inflated salaries.

“It’s the attitude people had 25 years ago, informed by a policy stance he had while working in the Reagan administration,” said Scott Morris, an Obama administration Treasury official who is now a senior fellow at the Center for Global Development. “He still sees the institution through that lens.”

Between his criticism of the bank’s practices and culture and his drive at Treasury to reduce U.S. financial contributions to the World Bank, “it’s hard to spin him as a friendly leader for the institution,” Morris said.

On the surface, the choice mirrors other Trump nominations, both for domestic and international positions, with leaders seemingly hand-picked to undermine the agencies they are tapped to lead. Trump named a coal lobbyist, Andrew Wheeler, to run the Environmental Protection Agency. Rick Perry, the secretary of energy, famously sought to abolish that department during his own failed run for president. And Trump’s first secretary of state, Rex Tillerson, eagerly gutted staff and budgets to neuter U.S. diplomacy.

There is an opening at the top of the World Bank because current President Jim Yong Kim abruptly said last month he would leave three years before his term was up. The bank expects to name the new president by April.

Malpass’s nomination could be expected to ruffle feathers in Europe. By long tradition—since the creation of the World Bank and the International Monetary Fund at the end of World War II—the United States picks the head of the bank and Europeans choose the head of the IMF. But many Europeans at least see Malpass as a relatively qualified pick with experience across three presidential administrations.

“At least it is somebody who is a known quantity, somebody that governments can deal with,” said André Sapir, a former economic advisor to the European Commission and now a senior fellow at the Bruegel think tank in Brussels. “An appointment from Trump—it could have been worse.”

So what could a Malpass presidency mean for the World Bank? Fundamentally, he has sought to keep the bank from growing and to shift its loans away from better-off countries to those that truly can’t access capital anywhere else. In particular, he has urged a bigger role for private capital to finance development in many parts of the world and a smaller role for multilateral banks like the World Bank, which he has described as “intrusive.” The World Bank, for example, has all but ended its financial support for coal-fired power plants in countries around the world, since burning coal contributes to global warming.

In testimony before the U.S. Senate last year, Malpass highlighted that many developing countries have easier and cheaper access to private-sector financing, arguing that the World Bank should limit its loans to truly needy countries.

He has taken aim at China in particular. At Treasury, he argued against pumping more U.S. money into the bank while it was lending more money to China than anywhere else. At the same time, he has warned that China’s own lending practices around Asia, Africa, and Latin America can lead countries into a debt trap.

“China borrows cheap from the World Bank and relends money with a geopolitical markup, lending according to its own geostrategic priorities,” said Benn Steil, the director of international economics at the Council on Foreign Relations. In late 2015, China led the creation of the Asian Infrastructure Investment Bank, meant to act as a rival to the Western-dominated World Bank, but it has continued tapping the World Bank’s credit lines.

“We’re talking about a country that should not be borrowing from [the World Bank], and it’s the biggest borrower,” Steil said.

Others noted that, while China may not need the money made available by the World Bank, those loans can nudge Beijing in directions that are broadly beneficial. Many of the World Bank loans, noted Morris of the Center for Global Development, are directed at efforts to reduce carbon emissions in China, the world’s biggest polluter. “China doesn’t necessarily need the money, it’s more the incentives those loans create,” he said.

At the same time, the World Bank has worked with China on President Xi Jinping’s signature project, the $1 trillion or more Belt and Road infrastructure program, in order to boost financial transparency and improve the quality of the projects that Beijing is underwriting—an effort that Malpass has been critical of.

“Malpass will certainly affect the relationship with China—what role will his World Bank play?” Morris asked.

Ironically, Malpass’s efforts to slim down what he sees as a bloated World Bank could create even more space for Beijing to flex its financial muscles—and potentially reap geopolitical rewards. In addition to the Asian Infrastructure Investment Bank, China has also helped launch the so-called BRICS bank alongside other developing countries, and it throws tens of billions of dollars into development through national outfits such as the China Development Bank. That has prompted Chinese-led infrastructure development from East Asia, through the Indian Ocean, throughout Africa, and as far afield as Europe and Latin America.

“He actually does want to shrink the institution and lend to fewer countries,” Morris said. “So where would they go for alternative sources of financing? China is at the top of the list.”