Why a nominee from rest of the world must head World Bank and end US' reign

Europe should vote with emerging-market nations in order to ensure that, for the first time, a nominee from the rest of the world runs the bank

In many ways, David Malpass, whom US President Donald Trump nominated on Wednesday to head the World Bank, is an unsurprising choice. He’s a senior Treasury official overseeing international affairs. Plus, his background absolutely screams “Trump nominee”: He isn’t a woman (Indra Nooyi, formerly of PepsiCo Inc., was being considered). He is an outspoken critic of the institution he is now to head (recall Scott Pruitt’s tenure at the Environmental Protection Agency). And he has a controversial Wall Street background (he was chief economist at the ill-fated Bear Stearns), as well as some embarrassing calls in his past (he wrote a Wall Street Journal op-ed in 2007 insisting that the housing market couldn’t pull down the broader economy).

 

Even so, this is the moment when the American reign over the World Bank must end. Europe, which gets to pick the head of the International Monetary Fund in return for ceding the World Bank choice to the US, should vote with emerging-market nations in order to ensure that, for the first time, a nominee from the rest of the world runs the bank.

Ironically, as with surprisingly many of Trump’s decisions, there’s a germ of a good idea in Malpass’s appointment. Some of the criticisms levied against him by the development policy community are, in fact, good reasons for him to have the job. In particular, Malpass has gotten three big things right.

First, he acknowledges that the World Bank must diversify away from its decades-old fight against extreme poverty. That became its focus under Robert McNamara, at a time when there was little attention and less capacity devoted to understanding what kept people in the developing world poor. In the years since 1990, though, the world has made great strides in eradicating poverty. It’s now time to focus on the bank’s original purpose, and one of the biggest constraints on the developing world becoming rich: the shortage of infrastructure.

Second, Malpass knows that China’s lending in the developing world is a problem. In testimony before a Senate Foreign Relations subcommittee a few months ago, he argued that “China’s use of non-market export credits, opaque financing, and exclusive procurement practices often benefits the donor more than the recipient and undermines debt sustainability, domestic institutions, and environmental and social standards.” This is exactly right, and both the financial and development communities need to understand that this is a challenge that must be answered, not ignored.

Finally, Malpass understands how the World Bank’s role in developing countries needs to change. In that same testimony, he argued that multilateral development banks “need to focus more on the quality of their project loans, rather than the quantity and on helping developing countries get their policy environment right for using private capital inflows effectively.” The truth is that the amount of private capital in the world available to build sustainable, climate change-ready infrastructure dwarfs the amount that the World Bank and its peers can put into the field. They need to transition to working more closely with private capital if they are to become truly transformative.

And yet, even if these are the right instincts, this is the wrong way to get them on the agenda. Multilateral development agencies are precisely that — multilateral. Everyone needs to be on board, and we can’t afford to have these ideas tainted by association with “America First.”

More importantly, if the World Bank is truly to respond to the needs of new, emerging and developing economies, then it needs to be led by someone with direct experience of those nations and their priorities. As former Indian central banker Raghuram Rajan pointed out as long ago as 2008, multilateral agencies have to “encourage [development] strategy formulation” by host governments. They need to be impartial, sometimes combative, policy advisers.

This won’t work if they are still seen as pawns of the West. Changing who runs the World Bank would be the strongest possible message that it’s no longer beholden to America or Europe. Yes, the US is the World Bank’s largest shareholder, and the bank itself has made itself more accountable to its host countries. Still, a bank for the world must be governed by the world.
Bloomberg