Credit check: World Bank chief’s five year challenge after election rumpus

Jim Yong Kim faces a challenge in driving through his reform agenda in his second term amid criticism of his performance so far — and of the election system that handed him another five years in the top job

  • By Phil Thornton
  • 04 Oct 2016
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Maybe it is because it carries the title of president that the race to become the next head of the World Bank appeared to echo the other, frenetic presidential election process in the United States.

The process to choose the head of the giant multinational lender began a full 12 months before the term of the incumbent Jim Yong Kim expired in July 2017. But there the comparison ends: while almost 20 people put themselves forward to fight for the right to run for the White House just one person came forward for the Bank — Kim.

The decision on whom to appoint to the top jobs at the two intergovernmental bodies that oversee global financial problems, known as the Bretton Woods sisters — the Bank and the International Monetary Fund — has become more political in the wake of the global financial crisis and recession that hit emerging and developing economies.

Although Kim’s current term carries on until July next year, the news that the man known as JYK had already started sounding out shareholders for an extension during the summer of 2016 sent shock waves through Washington’s north western quadrant.

“It really blindsided a lot of people, myself included, who were sure this would not come up until the April 2017 meetings,” says Lant Pritchett, senior fellow at the Center for Global Development and a former economist at the World Bank for 17 years.

The news has stoked up simmering concerns over the way that the head of the World Bank is chosen, as critics feared that JYK’s proactive campaign would close off a debate about the selection process.

Luiz Vieira, co-ordinator of the Bretton Woods Project (BWP), a civil society network that monitors the Bank, says that Kim was probably keen to avoid the possibility of Donald Trump, a critic of globalisation, becoming president and having the power to block Kim’s re-election.

However, it is the role of the Bank and of the United States, its largest single shareholder, in seemingly throwing their weight behind Kim’s candidature that has really riled Bank watchers. After the news broke, the Bank moved to launch the process and gave just three weeks for nominations and then another “two to three weeks” for interviews for the shortlisted candidates.

Vieira says this contrasted with the months the Bank took to hire Paul Romer to replace Kaushik Basu as its chief economist ahead of the Indian scholar’s retirement in July. “It is the lack of transparency, lack of accountability, the speed of the process,” he says.

“Surely for an institution that’s very process oriented and goes around the world talking about the benefits of open merit-based processes and about good governance, the contrast between the Bank’s approach and what it preaches is quite stark.”


NO CONTEST

On September 14 the Bank announced that only JYK had come forward. Observers blame the US for the lack of a contest. The Treasury put out a tweet shortly after midnight on the day the nominations opened, throwing its weight behind JYK for a second term. “Obviously the US government doesn’t want to have debate,” says Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics (PIIE).

In the days after the US announcement, 19 major shareholders indicated they would support Kim including China, France, Germany, Japan, Pakistan and the UK. Since those accounted for 51.54% of the votes the game was over before a speech was given in anger.

“They could have waited until the nomination period closes to say which of the nominated candidates they were going to support,” says Pritchett. “How inappropriate is it to declare which candidate you support before the closure of the nomination period? Patently they were trying to deter there being other nominations.”

Vieira at BWP, which has long called for a genuinely open-minded, merit-based and transparent process to select a new president, is angry that once again the opportunity for a non-American candidate to argue their case has been lost.

He conceded that the election of a president from an emerging or developing country would be “no panacea”, especially as the winning candidate would inevitably come from what he calls the establishment elite of their relevant country.

“Would this change necessarily imply radical change in what the Bank does?” he asks. “No, but it would be a step in the right direction and if they had a merit-based transparent process, that would be much more in line with the development ethos of the institution and what they preach to others.”

Kim’s behind the scenes lobbying was revealed by the World Bank Staff Association, which has in the past complained about Kim’s running of the Bank after its private letter to the executive directors of the Bank was widely leaked.

“At the World Bank Group we preach principles of good governance, transparency, diversity, international competition and merit-based selection,” they wrote. “Unfortunately, none of these principles have applied to the appointment of past World Bank Group presidents.

“Instead, we have accepted decades of backroom deals which, 12 times in a row, selected an American male. This must change.”


MANAGEMENT SHAKE-UP

As the dust settles on the election process, attention will turn to what Kim will do with his second term that will take him to 2022. For many observers it is hard to answer that question without looking at the president’s record in the initial four years of his first term in office.

There is no doubt that Kim was dealt a bad hand in terms of the unexpected challenges thrown up by natural and human-made disasters. The turmoil in the Middle East following the Arab Spring and the rise of Daesh were followed by the outbreak of Ebola in Africa and of the Zika virus in Latin America. This has coincided with a shift in emphasis and financial resources away from traditional development work — investing in infrastructure or country-based programmes to deal with poverty — to thematic issues such as pandemic preparation, climate change and dealing with refugee problems.

This transformation was at the heart of a shift from a focus on country-by-country issues to the creation of 19 global practices on issues ranging from agriculture to water that cut across national boundaries and pre-existing managerial responsibilities.

Health was one of those and, as a former director at the World Health Organization, Kim was praised for his swift and effective interventions on those issues.

“Obviously the World Bank has been a bigger player in health issues and that goes to his credit,” says Kirkegaard at the PIIE. “Perhaps it is the fact that the Bank should be more active on health issues as is the case now and lives undoubtedly have been saved as a result.”

However, the restructuring triggered anger and protests among the Bank’s 15,000-strong workforce as the plan involved cutting $400m of costs that included taking out levels of management.

The World Bank Staff Association says its annual employee engagement survey has, for two years running, made it “painfully clear” that the World Bank Group is experiencing a crisis of leadership. Four out of five staff say that they clearly understand and embrace the institution’s overall goals. However, in stark contrast, only one in three understands where the senior management team is leading them. “Even fewer believe that our senior management creates a culture of openness and trust,” it says.

Kirkegaard says that one should not overplay the reaction of staff to the restructuring of an organisation that many people have seen as a sluggish bureaucracy and which has inevitably led to people seeing their jobs reorganised and their colleagues made redundant.

“There are lots of things that need to be changed at the World Bank — many to do with staffing that will naturally upset them — so that is not in itself an argument against a second term,” he says.

His concern is that there is little to show from the reorganisation in terms of action on the ground or signals as to the strategic vision for the Bank. “This was supposed to be a big McKinsey-style turnaround and do things dramatically different, yet at end of day there is not much to show for it,” he says.

The reorganisation had a false start. After being created in July 2014 the global practices were reorganised into three groups with education, health and social protection and labour global practices going into one group, areas such as energy, environment and water going into another and a third taking poverty and less core issues such as finance and markets.

Pritchett says that of the leaders put in place at the 17 initial global practices only nine were still in place. “Whether the global practices were a good idea or bad idea, it hinged on being able to recruit the kind of people who could make it work,” he says. “Within two years you had a 50% turnover rate.” The Bank declined to comment.

Pritchett says that Kim had “picked the battle to fight” but did not have the “management wherewithal” to follow it through and make sure that the ideas worked. “Now he is in a worse position because he used whatever political and organisational capital he had and didn’t actually follow it up and make sure it worked.”

A spokesperson for the Bank said: “The original structure of 17 global practices has today been retooled to 14. In the years since their establishment, a number of movements have occurred in the leadership — two senior directors have gone on to become country directors, others have rotated into other positions within the organisation, and two have retired.” 

Since the changes were first implemented, the Bank has delivered a record level of lending outside of a financial crisis. Demand for lending from the World Bank has risen to levels never seen outside a financial crisis, climbing to more than $160bn between the 2013 financial year and 2016.

Although the changes were implemented by Kim, there has been a move under his predecessor Robert Zoellick to to restructure the Bank. He was concerned that it took 25 individual decision points before loan approval, which pointed to an institution that was process-heavy and overloaded.  


FIVE MORE YEARS

Given that is it highly unlikely that the restructuring will be altered again, the issue for the president will be how to use the remaining 5-1/2 years of his term.

One of the key challenges remains how the Bank should position itself within the development universe where the vast majority of flows of capital come from private investors while new players such as the China-led Asian Infrastructure Investment Bank are becoming significant players.

Kirkegaard says that the Bank must accept that it will become a niche player. “Private sector flows will dominate to such an extent that the World Bank will be able to help through its institutional capacities to channel such private flows towards most of the productive uses in a way that is environmentally sustainable and ensure that other types of degradation don’t take place,” he says.

However, civil society groups believe that the Bank has a long way to go on those types of issues even with the $61bn of lending that it makes every year.

The Bretton Woods Project has been a longstanding critic of the environmental impact of the Bank’s projects and is worried by the Bank’s review of its safeguard policies, which it fears will lead to a weakening of protections of human rights and environmental standards.

Civil society groups believe that the Bank will weaken standards further to compete with rivals such as the AIIB — although both the Bank and the AIIB insist that they will continue to maintain high standards.

Vieira at BWP believes that the review of safeguarding standards is a “good test case” of the president’s next term. He says the Bank must do a much better job of engaging communities affected by its lending.

“It should allow them to participate in the process of design and implementation,” he says. “The idea of inclusion of civil society is the key to making the Bank better able to develop policies that are pro-poor equitable.

“If I was to have only one demand, it would be to improve that consultation process with affected communities and that would entail being able to take action to safeguard their rights.”

The Bank may move away from the big ticket projects as the AIIB steps up its lending programme. The Asian unit has approved half a dozen loans so far while its business plan for 2016 sees lending of $1bn.

Kirkegaard says it should use its existing institutional strengths and assets to pioneer better responses to phenomena such as the explosion in the use of so-called big data — giant datasets that may be analysed computationally to reveal patterns, trends and associations.

“The World Bank is in a position of an institution that can set standards and bring governments together,” he says. “It has legitimacy in large parts of the developed and developing worlds. It is to Kim’s credit that the Bank has been moving in that direction but mastering this increasingly important part of development policy will be key to how relevant it will be in five years’ time.”

At the same time there is a debate going on among Western countries over whether agencies such as the World Bank should retreat from a vision of national development into a narrower approach that focuses on the poorest of the poor.

Pritchett at CGDev, who is also a professor of international development at Harvard, says the World Bank can look for an enhanced role as governments look to set aside broader issues of national development such as fostering productive economies and capable governments.

“Western countries want the World Bank to scale back its vision and define development down and I think we need a leader who can define development up,” he says.

“A visionary leader has to reaffirm the Bank’s commitment to focus on the big national development issues: how countries are going to become productive and prosperous — not just ‘not poor’ — and how governments are going to get rid of the scourge of corruption and deliver the services their citizens want.”

Kim is likely to come out fighting after the endorsement of the executive board as shown by his launch of the World Bank’s new paper on poverty on Monday [October 3].

But whatever happens over the next five years it is almost certain that the debate over the selection process for the head of the World Bank will not go away and may intensify. The World Bank Staff Association points out that the United Nations, which was formed at the same time as the Bank, has a selection process that is “guided by principles of transparency and inclusivity and explicit diversity objectives”.

The issue is certain to come to a head in 2022 when both Kim and Christine Lagarde, the head of the International Monetary Fund, come to the end of their second terms.

Kirkegaard says that the decision to allow Christine Lagarde to remain as head of the IMF so cementing the unbroken control by Europe of that job for the last 70 years was probably a significant factor behind the US’s decision to insist on Kim staying at the Bank.

“You could argue it sets up for change in 2022 as it seems likely to me that the IMF will get a non-European head after Madame Lagarde’s second term,” he says.

That will give emerging markets five years to unite behind a strong candidate — something they have failed to do since the jobs came up for election. “Is that good for the World Bank as an institution? Will it come out strengthened as a result of those five years? I doubt it.”

  • By Phil Thornton
  • 04 Oct 2016

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