Waiting for Malpass to reveal his true colours

Six months into the job, David Malpass has had an easy ride. But life is about to get harder for the new World Bank chief as he goes into his first annual meetings

  • By Phil Thornton
  • 15 Oct 2019
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In the Sherlock Holmes story, Silver Blaze, the famous detective solves a murder mystery by observing the curious incident of the dog in the night-time. The fact that the dog did not bark reveals that the pet knew the house burglar.

Six months ago, emerging market policymakers, aid agencies and World Bank employees were braced for David Malpass, the newly appointed head of the multilateral to follow the lead of his effective appointee, US President Donald Trump, and get his teeth into the bank.

But as ministers and central bankers gather in Washington, D.C. for Malpass’s first annual meeting as president of the bank, they are aware there has been little bark and not much of the bite they had been fearing. Perhaps he was not the attack dog they had feared.

“We were right to be concerned when Mr Malpass was appointed because there was evidence he might be more active in areas such as climate change and the environment,” says Paul Cadario, a distinguished fellow at Munk School of Global Affairs and Public Policy at University of Toronto, who worked at the bank for 37 years. “He is not quite as awful as everyone was concerned he would be, given who nominated him.”

Malpass took an early stand on climate change, indicating there would not be a reversal of the bank’s strategy to help poor countries address climate change by investing in projects to adapt to and mitigate its impacts.

He also ruled out any plans to mirror Trump’s policies to boost the coal-industry by funding fossil-fuel energy plants. “The World Bank board and the governors have established a policy on that. I don’t expect a change in that policy.”


So far, so… quiet

Given that Trump has called climate change a “hoax”, withdrawn the US from the Paris accord signed by all other countries, and in 2012 accused the bank of being “ineffective” by tying poverty to climate change, Malpass’ quiet acceptance of the bank’s position is significant.

Another area where observers had feared that Malpass would be an enforcer of the Trump agenda is China, with Malpass perhaps coming under pressure to allow the bank to be used as a weapon in the unfolding trade war.

After a meeting with Chinese premier Li Keqiang in June, Malpass praised China for its economic growth and development that had helped to lift a large number of people out of poverty. Malpass said he looked forward to co-operation with China in multiple fields on bilateral and global scales to achieve mutually beneficial and win-win co-operation and promote global development.

The third area of inaction that has been strongly supported — particularly by bank staff — is the lack of a major reorganisation of the institution that incoming presidents tend to order.

His predecessor Jim Yong Kim embarked on 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.

Masood Ahmed, president of the Center for Global Development (CGD) thinktank, says that the first six months of Malpass’s presidency had not been like that of Kim who “set the bar” for reorganisation.

“He is low key in his engagement with people,” Ahmed says. “He’s willing to learn, and he’s quite interested in rolling up his sleeves and sitting down. What I gather from talking to people who work inside the institution, they’re all like, ‘you know, he is much easier to work with’.”


Another capital increase?

In terms of what he has done, Malpass impressed observers with his decision to make Africa his first overseas visit as president, travelling to Ethiopia and Madagascar to visit bank-funded projects before going to Mozambique where he took a tour of the areas worst affected by cyclone Idai.

Following the trip, the bank mobilised more than half a billion dollars in new resources to help people in Mozambique, Malawi, and Zimbabwe.

But the blank section in his record so far is what his agenda will be for his five-year term. “He doesn’t have the big vision thing and there is not much vision among senior people at the bank,” Cadario says.

This has allowed interested parties to fill in the blanks. For Amar Battacharya, the former director of the Group of 24 countries and now a senior fellow at the Brookings Institution, Malpass has an opportunity to change the whole narrative around development economies.

He identifies a “once in history moment” for the bank and other development institutions to scale up their investment to meet the challenges of the UN’s sustainable development goals (SDGs) and what he calls the “existential threats to the planet”.

“The World Bank may no longer play a dominant role, but nevertheless, [it has] a quite central role and has to be part of that challenge,” he says. “The world needs to invest more in the next 20 years than we would normally do in a century because of the need to restructure the existing capital stock, and the huge structural changes that are now underway in emerging markets and developing countries, particularly around shipping, urbanisation and connectivity.”

Battacharya warns that such a programme will necessitate Malpass going back to the Bank’s shareholders for a further capital injection, just a couple of years after he helped negotiate a deal while he was at the US Treasury. That will see the capital of the International Bank for Reconstruction and Development (IBRD), that lends to middle income countries, raised by $61.1bn from $268.9bn to $329.0bn. The capital of the International Finance Corporation, which encourages private sector investment, will be raised by $5.5bn.

Although all member countries have approved the move, it needs the US to pass a law enacting the increase and the legislation is currently stuck on the Hill.

The Treasury needs to send the plan to Congress where it is likely to receive a hostile reception from the Democrat-controlled Committee on Financial Services.

“The bank has critics along the left and right of the political classes in the United States and that will have to be dealt with because the capital increase is needed particularly if there is going to be a global recession,” Cadario says. “It would allow the bank to respond if access to credit is somewhat reduced.”


‘Own goal’

However, the capital increase comes in exchange for a shift in focus for the IBRD away from lending to middle-income countries such as China, India and Brazil and more towards poorer countries by using income-based country lending allocation targets and differentiated loan pricing i.e. higher for richer countries.

Although that fits with a Trumpian view of the world, outside observers believe Malpass will have to revisit it. Ahmed at CGD points out that most of the decisions on infrastructure investments over the next two decades to tackle climate change will be in middle income countries.

“For the World Bank to sit out those decisions rather than being a player and trying to influence them through active engagement and through financing of the right kinds of project choices seems to me to be a sort of own goal of historic proportions,” he says.

Particularly at a time when Chinese-funded development institutions such as the Asian Infrastructure Investment Bank (AIIB) and the New Development bank are investing in traditional infrastructure such as rail lines and ports, the World Bank should focus on looking at how the global public goods dimension is fed into the middle income relationship, Ahmed believes. “They should certainly not think of this as pulling back in a numerical sense,” he says. “I just don’t see the logic of it.”

Of course, this debate over the role that the World Bank should play in global development, which has been rumbling on for some 15 years, is no closer to being resolved.

It will continue to engage with the IDA countries and particularly with countries affected by fragility, conflict, or violence that lenders such as China are less keen to lend to. “But the bank needs some customers other than those,” Cadario says. “Does the bank get pushed into being lender of last resort for countries that others don’t want to touch? Is that a sustainable business model?”

On the eve of the meetings, Malpass gave a strong indication he will focus on countries rather than dealing with what economists call global public goods such as climate change mitigation, financial stability, security, and public health — Jim Kim’s agenda.

“Structural reforms are needed country by country in order to allow growth to really pick up,” he said at the Peterson Institute for International Economics. “What can developing countries do? Well-designed structural reforms are urgently needed to unlock barriers to growth and build the foundations for future prosperity.”

This may disappoint observers such as Ahmed who believe that development priorities need to move towards a regional and global agenda. “I would say that the opportunity for the World Bank is to say how it is going to ensure that the development community is able to contribute to and be part of that agenda.”

Battacharya is optimistic, saying he believes Malpass has signalled he does understand the climate agenda and its importance now. “But whether he has fully internalised the scale and urgency of the challenge and the need — whether he recognises that we can’t wait till 2021 and 2022 — that I don’t know.”

  • By Phil Thornton
  • 15 Oct 2019

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