The World Bank President we want: a time for new thinking on development finance
When Harvard-trained global health leader Jim Yong Kim took office as World Bank President in 2012, many thought he would put locally-anchored sustainable development and accountability at the centre of the World Bank’s approach. However, a critical look at his tenure, and his new workplace, raise many red flags. Now that most headline news is about the role Ivanka Trump will play, who the US nominates and the timeframe for nominations – which kick off in three weeks – it is crucial to clarify: who needs to be at the helm of the World Bank for the institution to serve its development mandate? And what kind of process, and eventually president, will serve to raise the legitimacy of the institution?
Kim’s departure has been a surprise for many. But the fact that he will join Global Infrastructure Partners (GIP), a private equity fund based in New York with links with the Cayman Islands, is subject to heavy criticism. It highlights the potential conflict of interest implied in Kim’s support for private finance, and for infrastructure finance in particular, and exposes the way in which corporate players take an ever greater role in public policy formation.
Under Kim’s presidency, the World Bank’s approach to development finance changed. The 2013 World Bank strategy focusing on ‘ending extreme poverty and promoting shared prosperity in a sustainable manner,’ represented a promising step. However, he greatly contributed to placing private finance centre stage. And he was not alone. Key shareholders also pushed private finance in other fora outside the Bank, such as the G20. He promoted a vision of the bank that closely resembles Wall Street – keen on attracting private equity firms, insurance companies and sovereign wealth funds. This approach resulted in the ‘Maximizing Finance for Development’ approach, which focuses on ‘crowding in’ private finance and ‘creating markets’, without sufficient assurance that human rights and the environment are protected. Although not new, this represented a vigorous and systematic step to push its implementation forward – accompanied by changes to the institutional incentives to guide staff performance.
The ‘private finance first’ strategy promoted by the World Bank heavily relies on ‘de-risking’ private finance, when in fact the risk and related costs are shifted to taxpayers. Among other things, the World Bank has provided finance, and advised companies and countries to engage in Public Private Partnerships to develop (economic and social) infrastructure and social services, whichcreated excessive fiscal risks to public finance and threatened to deepen inequality and exclusion.
Time for fresh thinking
Any member of the World Bank can nominate a president. But since its founding, there has been a gentleman’s agreement between the US and Europe that an American would lead the World Bank, while a European would lead the IMF. In 2012 two former finance ministers were nominated without success: Ngozi Okonjo-Iweala from Nigeria and José Antonio Ocampo from Colombia. There was not enough support to break the non-written rule.
Developing countries’ frustration about US dominance in the World Bank has led to new institutions, like the Asian Infrastructure Investment Bank and the BRICS’ New Development Bank. These two are seen as a political response to an institution failing to adapt to the new economic order, with a governance structure that is unjust.
As we explain in Eurodad’s report ‘Public Development Banks: towards a better model’, the world needs institutions like the World Bank, as the commercial financial sector is unlikely, of its own accord, to provide the finance needed to support sustainable economic development.
Kim’s resignation is a chance to show real commitment to an “open, transparent, and merit-based” process – something that bank Board members have reaffirmed. The legitimacy of the World Bank as a development institution is at stake. European governments have the opportunity to show a firm commitment to multilateralism by supporting the nomination of non-American candidates and selecting the most appropriate person. Given that the World Bank operates in developing countries, and has the strongest impact in the poorest, it is vital that any candidate has strong backing from developing countries.
- should bring new thinking on development finance; a strong recognition of public interest; and enough charisma and political will to deliver a political u-turn;
- should resist pressure from private sector lobbies AND World Bank dominance by high-income countries;
- must be committed to multilateralism, democratic accountability and full transparency; and
- should promote the highest environmental, social and human right standards.
The President must also understand the development challenges that the world faces and commit to implement - and not undermine - the global agenda on development, inequality, climate change, and social justice.