Written by Ryan McGuine //
In January, World Bank Group President Jim Yong Kim announced his plans to resign after six years in the role, and begin work at Global Infrastructure Partners, an independent infrastructure fund manager. This decision surprised many, since he was only recently re-elected for a second five year term in 2017. Dr Kim cited an opportunity to make a bigger impact in the private sector addressing the “infrastructure gap” as the main reason for his resignation.
The election of Dr Kim to the position in 2012 came with some controversy. Since the Bretton Woods Conference, Europe has backed the USA’s nomination for World Bank President, the USA has backed Europe’s nomination for IMF Managing Director, and each respective nomination has carried the overall election. However, during the 2012 election many wondered whether Dr Kim, the American nomination, was indeed the best candidate for the job. Some observers had suggested that it was time to break from the tradition of American leadership at the Bank, especially given that Dr Kim’s background was in the NGO space (he co-founded the health organization Partners in Health), rather than in banking and finance.
Dr Kim’s tenure has been noteworthy on a number of counts. Early on, he began instituting a reform agenda aimed at overhauling the Bank’s structure. Reforms to bureaucracies are never popular, and this was no exception. Staff expressed their concern with what they saw as an attempt to impose a one-size-fits all approach to the Bank’s work, significantly reducing the morale of employees. Despite the poor roll-out of reforms, Dr Kim’s supporters say they appeased shareholders who were concerned about escalating administrative costs. Detractors argue that the way he went about imposing his will, without first garnering political support, was emblematic of his autocratic leaderships style.
More materially, Dr Kim will be remembered for securing a $13bn capital increase for the World Bank, nearly doubling its lending capacity by 2030. In order to secure the support of the USA, the Bank agreed to raise rates for lending to middle-income countries — most notably China — which the Trump administration sees as unfairly receiving loans meant for developing countries. To this point, defining which countries count as “developing” is not straightforward. China certainly has very poor regions, but nonetheless the USA objects to a country which it sees as a strategic competitor receiving low-interest loans from the Bank.
Dr Kim oversaw a major ideological rebalancing of the World Bank on multiple issues. The World Bank was established to facilitate the transfer of codifiable technical knowledge like how to build infrastructure and boost crop yields, with the goal of fostering the growth of physical capital in developing countries. Under Dr Kim, the Bank has taken on a larger role in funding interventions to boost the growth of human capital like health and education, and has considered helping to finance “global public goods” — complex challenges that transcend national borders like climate change, pandemics, and migration. This rebalance should be welcomed, since the Bank is most effective when it operates in sectors that are ill-suited for private sector investment.
Along similar lines, Dr Kim played a role moving the Bank into areas previously considered to be squarely in the “humanitarian” realm. The Bank has traditionally been involved with “development” issues, but Dr Kim made the case that the two spheres are increasingly connected. Today’s average refugee spends 17 years away from home, and 59% of refugees live in urban areas, while inequality is on the rise in rapidly-developing countries. Thus, humanitarian relief needs long-term planning, and development needs poverty alleviation programs. Specific humanitarian interventions by the Bank under Dr Kim include helping West African countries to fight Ebola in 2016, and assisting the middle-income countries that neighbor Syria to accommodate Syrians fleeing conflict. Cynical observers suggest that the humanitarian sector is having trouble raising funds to support its operations, so the Bank has stepped in as the lender of last resort.
As a result of Dr Kim’s leadership, the World Bank of 2019 looks very different from the World Bank of 2012. Many are pleased by the changes made during his tenure, but many are not. An informal mantra among the Bank’s staffers — “we are not the UN” — illuminates some of the frustration. At the end of the day, it is not, and should not be, the charter of the World Bank to step in to address every problem in need of funding, whatever the ideological case for doing so. Lant Pritchett has said of the World Bank under Dr Kim, “the wrong changes have been done badly.” According to Mr Pritchett, the Bank has moved too far away from an emphasis on institution-building and economic growth, toward alleviating immediate suffering.
World Bank CEO Kristalina Georgieva will take over as interim president while the process of electing Dr Kim’s permanent successor takes place. Commentators had suggested that in order to secure the best chance of securing continued American leadership, the Trump administration should nominate a mainstream, uncontroversial candidate. Instead, the Trump administration has formally nominated David Malpass, currently Under Secretary of the Treasury for International Affairs. In the past, Mr Malpass has expressed skepticism of multilateral institutions, once remarking to a congressional panel that globalism had gone “substantially too far.”
It is worth noting that even though the USA is the majority shareholder at the World Bank, the vote for president is simple majority and no shareholders wield veto power. The other shareholders have the ability to outvote the USA. They have chose not to in the past, but the looming question is whether they will this time. Many observers have suggested that the time has come for the president to be chosen on merit, rather than nationality. Others have pointed out that an institution whose core product is policy advice for developing countries should be led by someone from a developing country. Of course, these two conditions are not mutually exclusive — One clear benefit of ending the American hegemony would be that the global development agenda would be independent of domestic partisan swings in the USA.
There remain reasons why Europe would still back the American nomination, however. For example, Europe may want to retain their unwritten privilege to nominate the IMF Managing Director, and may want to avoid a souring of diplomatic relations with the USA. Further, there is a chance that a failure to elect Mr Malpass will cause the Trump administration to reduce its contributions to the World Bank. These concerns fail to hold up under scrutiny, but the West has managed to maintain control of global multilateral institutions like the World Bank for decades, despite pressures to democratize them. Mr Malpass probably should not be the next president of the World Bank, but he probably will be anyway.