Saving the World Bank from itself: US representatives must demand transparency

The United States has since 1944 dominated the two largest global financial institutions based in Washington, D.C.:  the International Monetary Fund and the World Bank. The biggest question hovering over the meetings this week of the two institutions’ joint board of governors, is how long that dominance will remain intact, or whether indeed the anti-globalist forces that helped bring in a new administration in the White House will call for a drawdown or exit altogether from the Bretton Woods institutions.  

Signals from the White House are ominous.  The budget submitted in February, which called for cuts in World Bank funding by $650 million over three years, have rattled staff and shaken confidence in what was planned to a year of increased contributions from the U.S. and other shareholders. In a meeting with staff last week, World Bank President Jim Yong Kim previewed some of the messages he was planning for the Bank’s board of governors.  

I rose to ask this question: “What story are we telling our shareholder-governments about what the Bank pays off in dividends to the shareholders, to make it worth our while of staying engaged?”

{mosads}The answer from Dr. Kim was that what the World Bank can do, that other international mechanisms cannot, is to act like a “leveraging machine” by turning the billions into trillions and acting in the interests of poor countries who need this assistance the most. While the Bank has always acted in the interests of the poor in developing countries by offering loans, whether for infrastructure, policy reform, or investments in human capital like health and education, the Bank is doing so differently and more effectively now.  The difference is that now the Bank has progressed to welcoming engagements with a whole new group of investors, besides the traditional government-shareholders.

The additional investors include philanthropies like the Gates Foundation and private sector organizations like Merck. This crowding in of the civil society organizations and private sector goes by a special name, in the argot of the global financiers:  the “cascade” approach.  

Picture a waterfall:  the Bank will engage strategically with a developing country’s leaders to identify the scale of financial resources needed to address a particular problem, recognizing that in supplying that need, the funding may go from one pool of resources to another, in a series of cascades.  The result of all this cascading was that children in developing countries, such as Rwanda, are becoming exposed to the rest of the world using the internet, and raising their aspirations in life accordingly.

Jump into the Spring Meetings in full 360! Follow the continually updated #VR experience to engage: https://t.co/b8m6j8kEzQ pic.twitter.com/D5WP6Epima

— World Bank (@WorldBank) April 21, 2017

Dr. Kim’s response was a good one, but not one that would satisfy many critics of globalization, who are rightly skeptical of the effectiveness of global financial institutions generally, but especially so because of the conditions of secrecy with which these institutions have tended to operate.  

Critics also have their suspicions about the neutrality of the conditions that can accompany funding from the World Bank, especially in the human capital sectors like health and education, where conservative societies have learned to expect strong support for family planning, gender equality, and other forms of social engineering that, explicitly or implicitly, tend to come with the territory.  

The United States, as the Bank’s largest shareholder, continues to retain control over an influential bloc (nearly 16 percent) of the voting power in the International Bank for Reconstruction and Development (IBRD), the arm of the World Bank Group’s pool for middle income country-clients. The U.S. share in the International Development Association (IDA), the World Bank Group’s concessional funding pool for low-income and post-conflict countries, — once as large as 25 percent, — has fallen to a bare 10 percent, because in the last round of fundraising that concluded last September, American commitments amounted to just $7.5 billion over three years, of the $75 billion in total capital raised.  This puts the U.S. in the number 2 spot in IDA’s voting power behind Great Britain and on a par with the other big donor, Japan.  

As a 16 percent shareholder of IBRD, the World Bank’s senior arm, the U.S. can afford itself prerogatives of voice that other shareholders cannot, such as nominating the World Bank president, who is an American — as has been the case for the last 72 years.  Prerogatives such as this should not be thrown away lightly.

There is a better rationale for why we would save the U.S. share in the World Bank, and it is no different from the way President Trump decided to renew the charter of the Ex-Im Bank:  the Bank helps keep America in business by helping Americans and helping American businesses, big and small.

“Instinctively, you would say, ‘Isn’t that a ridiculous thing?’” the president said last week about the Ex-Im bank. “But actually, it’s a very good thing. And it actually makes money, it could make a lot of money.”

The World Bank makes money, too.  Lots of money:  Firstly, for its own account, in the form of interest on the loans it makes; but also for the American companies that supply the equipment and goods that get exported to borrower countries.  The World Bank creates or helps keep jobs secure for American workers, too: Directly by employing engineering firms and consultants who design the projects financed by the Bank; indirectly by keeping workers busy in good jobs here in the homeland when they are producing tangible project inputs like turbines and signaling stations for smart electrical grids.

Where Congress and the administration might well wish to be more cautious is to guard more vigilantly against the dilution of the strong U.S. voice in the World Bank by a profusion of special interests.  A worrisome trend lately has been the proliferation at the World Bank of special contributions made under the guise of sector-specific strategies and managed in the form of trust funds.  Beginning about 20 years ago, trust funds in areas such as environmental protection, early childhood education, eradication of diseases such as AIDS and malaria, building resilience against natural disasters began to be established.  

Trust funds at first augmented the funds that the World Bank provided out of its own pool of resources, but now just as often, overshadow the World Bank’s core resources in key projects. The World Bank has, by dint of its own success, become a favorite host institution for a plethora of funds and special interests sponsored by governments or foundations, each with their own constituencies which may or may not include or even coincide with the interests of the United States.

The voice of the U.S. in the way funds from these special commitments are spent necessarily follows the funds’ own governance directives, which might put the U.S. in an entirely different ranking from the voting allocation determined by the standard World Bank charter.  Sometimes the U.S. share may be greater, as is the case with the Global Fund for AIDS, Tuberculosis and Malaria, a fund that was a favorite of the Obama administration, where the U.S. share since 2009 has been about 25 percent. With many other trust funds, the U.S. has less say, or none at all, because it was not a contributor to the cause.  

Now under Dr. Kim’s leadership, it seems that fundraising of purely private corporate money, for special purposes that could compete alongside the World Bank’s core resource pools, are being heralded as the panacea to turn to address the problems of the world’s poorest countries and, by some strange alchemy, turn billions into trillions.

American taxpayers have a right to demand a more tangible return on their 70-years long investment held in the world’s premier development finance institutions than recording the smiles on the faces of the impressed third-world children using smartphones for the first time.  And America’s representatives at these meetings should demand concrete answers about the manner in which the World Bank’s spending and priorities reflect the U.S.’s strong voice for transparency, efficiency, and value for money, and safeguards against dilution of this voice by hidden and unaccountable special interests.

Jonathan Pavluk is a lawyer and a 25-year World Bank employee.  The views expressed in this article are his alone and in no way should be construed as the official position of the World Bank. 

The views expressed by contributors are their own and are not the views of The Hill.