Development Dispatch: the World Bank in transition

The sudden departure of Jim Yong Kim as the head of the World Bank in early January, three years before the official end of his term, took the world by surprise.

To be sure, Mr Kim’s tenure at the head of the US-based global development lender wasn’t without controversy. A physician by training and formerly a critic of the institution he came to lead, Mr Kim was a controversial figure among the bank’s staff. His efforts at reforming the behemoth were met with resistance in many quarters, and some said his overhauls were creating problems rather than solving them.

His decision to leave early to join a private sector financier, as well and the thorny issue of who will succeed him, is garnering much attention. At a time when the traditional role of development institutions is being redefined to give a much larger role to private investors, to have the head of one of the biggest public players switch sides raises eyebrows. The blending of public and private resources and expertise should be applauded; however, inherent in the entire enterprise is a surreptitious questioning of the public sector methods that have dominated the field since the Second World War.

Mr Kim’s departure fuels debate around whether byzantine and highly bureaucratic multilateral institutions can be made more nimble. These arguments are necessary, but one hopes they can be had in a spirit of renewal. Whether that will be possible in the Trump era of scepticism towards multilateralism remains to be seen.

Picking a successor to Mr Kim raises two problems. First, developing economies are growing impatient with the gentleman’s agreement that the US gets to pick the head of the World Bank, while the Europeans get to choose the head of its sister institution, the IMF. This unease is understandable when it is the Chinese, Indian and Nigerian economies that are set to be the engines of global growth in the coming decades.

Developing countries have put up challenger candidates in the past. Rumoured challengers this time around include former Nigerian finance minister Ngozi Okonjo-Iweala, former African Development Bank president Donald Kaberuka and Indonesian finance minister Sri Mulyani. All are eminently qualified.

Realistically, however, they are unlikely to sway the US. President Donald Trump is unlikely to yield the chairmanship of the bank to any candidate not picked by his administration.

Here, the US’s increasingly antagonistic stance towards China will come to the fore. Two Americans said to be in consideration for the top job are David Malpass, currently undersecretary at the Treasury, and Ray Washburne, president of the Overseas Private Investment Corporation. Aside from being middle-aged white men, they share a lack of developing world experience and hawkish views on China. It was in these terms that Mr Washburne framed and sold the legislation passed at the end of 2018 to create a new US development bank. Mr Malpass has publicly advocated for the World Bank to stop lending to China.

Cutting off the world’s second largest economy will be the interest that guides the administration’s selection process. On an income per capita basis, China is, after all, an upper-middle-income country that invests trillions in development in other, poorer countries. However, the benefits of China’s rapid growth have yet to reach millions within the country, and it remains one of the world’s worst polluters. Current World Bank rules on a lending cut-off are vague.

Tightening these requirements is a key US interest. Indeed, the US – backed by some European members – pushed hard for the World Bank to adopt stricter rules as part of the deal they struck with Mr Kim for a $13bn capital increase for the bank, one of the crowning achievements of Mr Kim’s term. US hawkishness towards China is on the rise, and the World Bank succession process will not be exempted from these battles.

Adrienne Klasa is the development finance editor of fDi Magazine. E-mail: adrienne.klasa@ft.com