On Washington’s 18th St, a bank waits for change
Ajay Banga will have to shepherd World Bank’s transition and mediate differences between economies. India must play an active role in the debate too
When the United States (US) invited 44 allied nations to Bretton Woods in New Hampshire in May 1944, the meeting was convened for the purpose of formulating proposals for an International Monetary Fund “and possibly a Bank for Reconstruction and Development”. The focus was substantially on the Fund, with the conference barely spending a day-and-a-half in the course of over two weeks discussing the bank. Indeed, a plaque placed outside the Mount Washington Hotel in Bretton Woods to commemorate the conference sometime later only mentioned the Fund, missing the Bank altogether.
The term “development” itself was an afterthought when conceiving the Bank, with the expectation that its primary role would involve the post-World War II reconstruction of Europe. A mix of factors — the recognition that the Bank didn’t have the resources to meet Europe’s reconstruction needs; the US eventually taking on that responsibility through the Marshall Plan; decolonisation and the West’s efforts to ensure that newly independent, poor countries didn’t turn communist; a change in the Bank’s own leadership and personnel and their discovery of the developing world — eventually transformed the Bank. It was only in 1949, during its fourth annual meeting, that the Bank said in its report that an “outstanding feature” of the year had been the increased attention to economic development.
In their magisterial history, titled The World Bank: Its First Half Century, Devesh Kapur, John P Lewis and Richard Webb have documented this evolution of the Bank from its tentative beginnings through its various presidents, shifting priorities, changing political contexts and different financial resource mobilisation techniques. The Bank itself consists of the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), and given its developmental outreach, is today far better known that its Bretton Woods cousin located across the street in Washington DC.
As the world’s top financial policymakers meet this week on the 18th and 19th streets in DC, the Bank is yet again at a critical point in evolution. In terms of leadership, David Malpass, a Donald Trump nominee, has resigned and the India-born American corporate leader Ajay Banga, a Joe Biden nominee, is set to take over the institution this summer. But beyond leadership, the Bank’s mission, operating model and financial mobilisation practices are all on the table for renegotiation.
Here is the problem. The Bank’s stated mission is eradicating extreme poverty and promoting shared prosperity. But the world isn’t any close to ending extreme poverty; instead, the pandemic has made more people poor, the poor poorer, and sustainable development goals are off target. Intra-State inequality and inter-State inequality appear to have only increased. And there is a big global challenge that permeates through every developmental initiative — the climate crisis.
Here is the bigger problem. The Bank, in its current version, does not have the money to fund development programmes as well as climate mitigation and adaptation programmes. Its capacity for short term lending is shrinking, its needs for long-term financing is increasing. The Bank will need $2.4 trillion annually to address these interlinked challenges. The West wants to channel the money towards climate mitigation; the Global South insists that it is time to increase the pie and focus on both development and climate, and within climate, prioritise adaptation and provide the promised finance to the developing world. Climate justice demands no less.
And here is the biggest problem. Twenty-five years ago, Kapur, Lewis and Webb wrote, “From 1960 onward, American governments of whatever party and presidency would have a “burden sharing” bias, seeking, when feasible, to scale down relative U.S. financial inputs to Bank activities, without diminishing U.S. voice.” The US, which is still the biggest shareholder and picks the Bank’s boss, does not want to invest more money (neither has treasury secretary Janet Yellen asked the US Congress for more resources for the Bank, nor will a Republican House give it), but doesn’t want to let go of control either.
But the good news is that everyone knows they have a crisis. This week, the Bank’s development committee, where Nirmala Sitharaman will represent India, will discuss an “evolution roadmap”, the first step in what could be the beginning of an ambitious transformation of the Bank.
This road map suggests reformulating the Bank’s mission to ending extreme poverty and boosting shared prosperity “by fostering sustainable, resilient and inclusive development”. This may seem like a matter of semantics, but a change in mission statement is significant for it will mean that every project, grant and loan has to meet additional parameters. The road map recommends a rejig in the Bank’s operating model by revamping country diagnostics, selecting global challenges, linking country-based models with the regional and global, scaling up efforts, and strengthening capacity for crisis response.
And it proposes a mix of financial measures to raise more money. These include private sector facilitation and domestic resource mobilisation; balance sheet optimisation; revision of equity-to-loan ratio from 20% to 19% to increase lending levels by another four billion dollars annually for ten years; issuing hybrid capital which refers to subordinated debt instruments, among other moves. It won’t be enough, which is where Banga’s banking and private sector skills will come in.
India is in a rare position. As G20 chair, it has a seat on the table in shaping the agenda of reforming multilateral development banks, a task that has been assigned to an expert group led by NK Singh and Larry Summers. In Bretton Woods, four Indian delegates — CD Deshmukh, Shanmukham Chetty, AD Shroff and BK Madan — made a mark. Almost 80 years later, New Delhi, as one of the few powers has credibility with both the West and the Global South, must actively intervene to shape the future of the World Bank.
The views expressed are personal
When the United States (US) invited 44 allied nations to Bretton Woods in New Hampshire in May 1944, the meeting was convened for the purpose of formulating proposals for an International Monetary Fund “and possibly a Bank for Reconstruction and Development”. The focus was substantially on the Fund, with the conference barely spending a day-and-a-half in the course of over two weeks discussing the bank. Indeed, a plaque placed outside the Mount Washington Hotel in Bretton Woods to commemorate the conference sometime later only mentioned the Fund, missing the Bank altogether.
The term “development” itself was an afterthought when conceiving the Bank, with the expectation that its primary role would involve the post-World War II reconstruction of Europe. A mix of factors — the recognition that the Bank didn’t have the resources to meet Europe’s reconstruction needs; the US eventually taking on that responsibility through the Marshall Plan; decolonisation and the West’s efforts to ensure that newly independent, poor countries didn’t turn communist; a change in the Bank’s own leadership and personnel and their discovery of the developing world — eventually transformed the Bank. It was only in 1949, during its fourth annual meeting, that the Bank said in its report that an “outstanding feature” of the year had been the increased attention to economic development.
In their magisterial history, titled The World Bank: Its First Half Century, Devesh Kapur, John P Lewis and Richard Webb have documented this evolution of the Bank from its tentative beginnings through its various presidents, shifting priorities, changing political contexts and different financial resource mobilisation techniques. The Bank itself consists of the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), and given its developmental outreach, is today far better known that its Bretton Woods cousin located across the street in Washington DC.
{{/usCountry}}In their magisterial history, titled The World Bank: Its First Half Century, Devesh Kapur, John P Lewis and Richard Webb have documented this evolution of the Bank from its tentative beginnings through its various presidents, shifting priorities, changing political contexts and different financial resource mobilisation techniques. The Bank itself consists of the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), and given its developmental outreach, is today far better known that its Bretton Woods cousin located across the street in Washington DC.
{{/usCountry}}As the world’s top financial policymakers meet this week on the 18th and 19th streets in DC, the Bank is yet again at a critical point in evolution. In terms of leadership, David Malpass, a Donald Trump nominee, has resigned and the India-born American corporate leader Ajay Banga, a Joe Biden nominee, is set to take over the institution this summer. But beyond leadership, the Bank’s mission, operating model and financial mobilisation practices are all on the table for renegotiation.
{{/usCountry}}As the world’s top financial policymakers meet this week on the 18th and 19th streets in DC, the Bank is yet again at a critical point in evolution. In terms of leadership, David Malpass, a Donald Trump nominee, has resigned and the India-born American corporate leader Ajay Banga, a Joe Biden nominee, is set to take over the institution this summer. But beyond leadership, the Bank’s mission, operating model and financial mobilisation practices are all on the table for renegotiation.
{{/usCountry}}Here is the problem. The Bank’s stated mission is eradicating extreme poverty and promoting shared prosperity. But the world isn’t any close to ending extreme poverty; instead, the pandemic has made more people poor, the poor poorer, and sustainable development goals are off target. Intra-State inequality and inter-State inequality appear to have only increased. And there is a big global challenge that permeates through every developmental initiative — the climate crisis.
Here is the bigger problem. The Bank, in its current version, does not have the money to fund development programmes as well as climate mitigation and adaptation programmes. Its capacity for short term lending is shrinking, its needs for long-term financing is increasing. The Bank will need $2.4 trillion annually to address these interlinked challenges. The West wants to channel the money towards climate mitigation; the Global South insists that it is time to increase the pie and focus on both development and climate, and within climate, prioritise adaptation and provide the promised finance to the developing world. Climate justice demands no less.
And here is the biggest problem. Twenty-five years ago, Kapur, Lewis and Webb wrote, “From 1960 onward, American governments of whatever party and presidency would have a “burden sharing” bias, seeking, when feasible, to scale down relative U.S. financial inputs to Bank activities, without diminishing U.S. voice.” The US, which is still the biggest shareholder and picks the Bank’s boss, does not want to invest more money (neither has treasury secretary Janet Yellen asked the US Congress for more resources for the Bank, nor will a Republican House give it), but doesn’t want to let go of control either.
But the good news is that everyone knows they have a crisis. This week, the Bank’s development committee, where Nirmala Sitharaman will represent India, will discuss an “evolution roadmap”, the first step in what could be the beginning of an ambitious transformation of the Bank.
This road map suggests reformulating the Bank’s mission to ending extreme poverty and boosting shared prosperity “by fostering sustainable, resilient and inclusive development”. This may seem like a matter of semantics, but a change in mission statement is significant for it will mean that every project, grant and loan has to meet additional parameters. The road map recommends a rejig in the Bank’s operating model by revamping country diagnostics, selecting global challenges, linking country-based models with the regional and global, scaling up efforts, and strengthening capacity for crisis response.
And it proposes a mix of financial measures to raise more money. These include private sector facilitation and domestic resource mobilisation; balance sheet optimisation; revision of equity-to-loan ratio from 20% to 19% to increase lending levels by another four billion dollars annually for ten years; issuing hybrid capital which refers to subordinated debt instruments, among other moves. It won’t be enough, which is where Banga’s banking and private sector skills will come in.
India is in a rare position. As G20 chair, it has a seat on the table in shaping the agenda of reforming multilateral development banks, a task that has been assigned to an expert group led by NK Singh and Larry Summers. In Bretton Woods, four Indian delegates — CD Deshmukh, Shanmukham Chetty, AD Shroff and BK Madan — made a mark. Almost 80 years later, New Delhi, as one of the few powers has credibility with both the West and the Global South, must actively intervene to shape the future of the World Bank.
The views expressed are personal
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