WORLD BANK: Doctor’s orders
The World Bank’s Development Committee meets today. Cutting poverty and raising equality are hot topics
Twenty years ago, street protests outside the Washington headquarters of the World Bank called for it to be shut down because of the impact its lending policies had on communities and the environment. Among the 50 years is enough protestors was Jim Yong Kim, recently qualified with two doctorates from Harvard.
Now holding the reins of the giant multilateral institution, Kim appears determined to steer it onto a different course than the one pursued by his predecessors, but one he believes will underpin the future of the bank rather than undermine it.
For the first time the bank now has an explicit target to end poverty getting the rate of those in poverty to below 3% of the population. The second is to achieve shared prosperity by boosting the incomes of the bottom 40%.
The issue that development ministers, aid agencies and bank staff themselves now want addressed is how this will be achieved. The answer will be set out in Kims strategic plan that is expected to be approved by the ministers at the Development Committee.
Homi Kharas, a senior fellow and deputy director at the Brookings Institution and a former World Bank economist, says those policies have been well received by those who work within the bank or in
development. But people are waiting to see exactly what the implications are of setting goals, he says. He has certainly sent a message that he feels the bank is in need of significant reform, and a lot of people are waiting to see exactly what the reforms look like.
Oxfam, the global charity, echoes that cautious welcome. Nicolas Mombrial, head of its Washington office, says it was a major victory to get goals on poverty and inequality on the table. It is good that Kim will push his staff to focus on poverty, and that is more than just spending the money and doing projects, he says, adding: This is something that the bank should have been doing for a long time.
He also hailed a decision by the bank to move away from a focus on the need for users of health services to pay and towards the idea of supporting universal health systems.
But that enthusiasm is not universally shared. For some NGOs this commitment is not enough to herald the sea change they want to see. It is not clear how he is going to do it, says Peter Chowla, coordinator of the Bretton Woods Project. He believes Kim should have set tougher targets on tackling inequality. He says the target only demands boosting the incomes of the bottom 40% regardless of what happens to the rest of the population.
Its one thing to bring everyone up to $1.25 a day but they are still miserably poor, and if you allow the creation of a new class of oligarchs you may not have helped out, he says. The target says they will measure the bottom 40%. Their income might grow, but in relation to what? If you dont spell that out, its an out for bank staff not to care about it.
Oxfam is urging the bank and ministers to harden the language in the strategy document by inserting text on the need for reforms to tax to boost income redistribution and to fund health and education. The proof will be in the pudding, says Mombrial, adding that Kims reluctance to set tougher goals might be linked to his role in protests two decades ago.
One thing he has had to do in his first year is to show he is not just a health guy, he says. When he started he was criticized because he was once against the World Bank, so he had to prove himself, and thats why he is not talking enough about health. This could explain a focus on the private sector in the strategy.
While NGOs want tougher language, there is growing speculation that some countries, including the US, will push for language around inequality of opportunity while some emerging economies do not want it included at all. China and some African countries believe the priority should be growth and then redistribution later, one NGO executive said.
Kim is determined to ensure the bank offers a more integrated approach. He frequently reminds his audience he is head of the World Bank Group, which includes three main arms that carry out different operations in different types of countries. These are:
International Development Association (IDA), which provides loans to poor countries;
International Bank for Reconstruction and Development (IBRD), which works with middle-income countries;
International Finance Corporation (IFC), which leverages private finance to meet development goals.
The strategy document says the organization will work as one World Bank Group by leveraging the strengths of each agency and align all WBG activities and resources to the two goals, seeking to maximize development impact, and drawing on the WBGs comparative advantages.
Mombrial says at face value integration will be positive if it leads to the IFC specifically targeting poverty. He acknowledges a shift away from profit objectives would mean it would require greater financing. If it is less focused on profit, then there will have to be a trade-off between its capacity to raise money and its need to tackle poverty, he says.
Kharas applauds the idea of greater integration but sees challenges particularly with the IFC, which tends to be transaction-oriented and keen to work with private companies, while the rest of the bank focuses on governments and long-term policy targets.
It has been tried many times before without much success, and it remains to be seen how much success Kim can achieve, he says. But the concept is exactly right and what a president should be trying to do.
Paul Collier, a professor at Oxford University and author of The bottom billion, says greater integration is significant and vital, adding: I see the core business as a public agency that brings in and catalyzes private capital into poor environments that find private capital hard to attract.
IDA is in a strong position having received a record injection of $49.3 billion by donor countries after the most recent three-yearly funding cycle, while countries such as India and Vietnam are expected to reduce their claims substantially.
However, if Kim does want to tackle poverty in middle-income countries, Kharas says he will look at funding for IBRD, which raises most of its money on the financial markets and which saw much of its capital taken up by the financial crisis.
In the latest financial year IBRD committed fewer resources than IFC $15.2 billion versus $18.3 billion for the first time in the groups history. So the big question is whether IBRD has enough firepower left to be able to play a very significant role, Kharas says.
The reason this is a concern is that IBRD is the only tool the bank has to tackle poverty in middle-income countries. Without solving that issue, figuring out the banks role in middle-income countries remains an unanswered question, he says.
Collier takes a different view, saying the bank should focus on the poorest countries rather than on middle-income countries where its aid is peripheral. It has a very important role in a diminishing but still significant group of countries, which are not securely on a path out of poverty, Collier told Emerging Markets at last months International Growth Centre conference in London.
This needs to be the core of the conventional banks business, operating in a minority of the worlds countries, which are difficult environments, he says. Precisely because of that, business as usual wont work, so new approaches have to be devised that do work in environments that are economically, socially or politically challenging.
Kim has to resolve these challenges, while ensuring the bank has a clear role in an increasingly competitive arena for development finance. As well as aid agencies, the bank is jostling for territory with philanthropists such as Bill and Melinda Gates and a development bank being set up by Brazil, Russia, India and China.
The World Bank, which used to act very much as a monopolist, now has to find its niche in a far more competitive arena, Kharas says. I think they are still struggling to see what is their competitive value added.
In the leaked strategy Kim talks about aligning resources towards the strategy and improving efficiency. The aligning process will see greater focus on results and a strengthening of incentives to cut costs and increase revenue.
Efficiency gains will be achieved through a right-sizing exercise...to tie the size and composition of units across the WBG to the strategy. The overall goal of the initiative is a net reduction in costs while retaining or expanding the capacity to deliver value to WBG clients [which] may require some targeted reinvestment.
In an unexpected move, Kim announced two longstanding executives, managing director Caroline Anstey and vice-president Pamela Cox, will leave after these meetings as part of a major management shake-up.
There has been great turmoil over some of the personnel decisions, and at least for me everything is in a bit of wait and see mode until one can see what the configuration of key players will be to implement this agenda, Kharas says.
I think the key here is going to be one of speed. If a new crop of people comes in then the first question is: will they be from the inside or will they be from the outside? And if they are from the outside, how long will it take them to find their feet in a rather complicated organization?
Trevor Manuel, former chair of the Development Committee and now minister in the South African presidency for the National Planning Commission, says Kim has to work with executive directors who are often divided and do not always see eye to eye with the management.
Just to ice the cake, you have 184 ministers who come twice a year and know all the answers, he jokes. So its not a very easy institution to run.
These meetings will be key for the success of Kims term in office. A year ago he had been in post for 100 days, and the meetings were held in Tokyo where they were dominated by the Sendai dialogue, a major debate over the lessons learned from the tsunami that hit Japan in 2011.
Manuel empathizes with Kims decision to battle poverty and inequality as the National Development Plan has set targets to reach similar goals by 2030. Kim has come in with great ideas on poverty and inequality, and we must give him the benefit of the doubt, he says.
His commitment to public health will stand him in good stead because it is a good example of what the bank can provide and is a good analogy for what needs to happen in society. If he can bring his own working knowledge into the bank, he can reposition it for the future.
In an intriguing summary of his mission, Kim has said the banks role should be providing things for the world that only the World Bank Group can provide. A unanimous approval of his strategy by ministers would be a first step in this journey.