The new World Bank president has racked up a lot of points in the last year but there are still huge challenges ahead
Robert Zoellick took the helm of a demoralized, scandal-stained World Bank just 15 months ago. Since then, the new president has racked up a set of widely lauded achievements. He has led initiatives to help poor countries with the food and fuel inflation crises, secured record donations for supporting the worlds poorest countries, set out six priorities for the Banks future and, by many accounts, boosted staff morale.
To many, the contrast with his predecessor, Paul Wolfowitz whose brief tenure and ignominious departure left the institution reeling could not have been more stark. Zoellick has managed to give a sense of purpose and direction, and the pipeline has been responding well, says Rogerio Studart, an executive director of the Bank.
Staff morale has been fully restored, and we have been able to play major roles in the food crisis and take some initiative in climate change, says Herman Wijffels, another executive director.
Zoellick also wins plaudits from development practitioners for infusing new energy into the Bank. In the past year, World Bank Group commitments grew by 11% to $38.2 billion as finance was rapidly approved to help the poor in the food crisis, and support grew for the job-creating private sector.
The funding up $3.9 billion from fiscal year 2007 is being used in 694 projects, designed to overcome poverty and boost growth through practical plans to enhance the business and investment environment and empower poor people.
The new president also saw through the largest-ever ($41.7 billion) replenishment for the World Banks International Development Association (IDA), which gives grants and interest-free loans to the worlds 78 poorest countries, and was widely praised for its timely response to this years food price crisis, when it set up a $1.2 billion rapid-financing facility to stave off hunger and malnutrition in the neediest nations.
The Banks credibility around the globe is on the rise again, says Johannes Linn, a senior fellow at the Brookings Institution in Washington DC and former vice-president at the World Bank.
A complex challenge
Yet even with renewed vigour, vast financial resources and deep technical expertise, the Bank faces complex challenges. For one, its true mission remains as ambitious as it is ambiguous. As articulated by Zoellick a year ago, the Banks purpose is to contribute to an inclusive and sustainable globalization to overcome poverty, enhance growth with care for the environment, and create individual opportunity and hope.
Globalization itself is part of the problem for the Bank. The globalization process has spawned vast increases in private capital flows and a diversification of global aid institutions that encroach on the Banks domain. The Bank as an institution is still declining in relevance and importance; apart from leadership issues, there are structural issues, says a former senior World Bank official.
The World Bank is inevitably suffering from the fact that its markets have changed completely the mix of clients, capability and needs of clients are drastically misaligned with the charter, says Moises Naim, editor-in-chief of Foreign Policy magazine and a former executive director at the Bank. Todays client base requires the Bank offer different products, different prices and different distribution channels, Naim says. The same holds for regional development banks and other development agencies, he says.
Reforming the Banks voice and vote structures could help boost its relevance to developing countries, argue the developing and transition countries (DTCs), who are pushing for greater representation. The Banks Development Committee will debate the reform proposals on October 10, and a final consensus is to be reached at the next World Bank spring meeting.
An internal Bank discussion draft dated September 4 that was leaked to the press says the reform would include increasing DTC voting power and shareholding in the World Bank Group, strengthening DTC representation at the Board and reforming the process for selecting the Bank president, which is not currently a merit process.
Parity is the principal demand of the developing nations bloc which proposes that, as a group, it should hold 50% of the voice and vote quotas while developed countries would command the other half of voting power. But large shareholders such as the United States are likely to resist such an arrangement, sources say.
To be a successful 21st century institution, the Bank has to reflect the economic reality that the middle-income countries [MICs] have a lot more clout and that low-income countries, the most affected by Bank policies, need fair voice at the table, says Elizabeth Stuart, an expert on World Bank policy with Oxfam International.
Vote and quota reforms at the IMF over the last two years are considered far from adequate as a model for Bank reform.
The Banks development mandate implies the institution should work with developing countries as partners, according to some 80 advocacy groups and academics who signed a letter to Zoellick endorsing the governance reform proposals which would be in line with the new systemic reality.
Six point plan
So far Zoellicks imprint on the Bank has crystallized around the six strategic directions he defined a year ago to promote inclusive and sustainable development. These are: overcoming poverty and spurring growth in the poorest countries; helping reconstruct post-conflict states; tailoring financing and technical services for middle-income countries; promoting global public goods including multilateral trade; controlling diseases such as HIV/Aids and malaria; protecting the environment and preventing and mitigating international financial crises.
Some Bank observers consider the priorities controversial: Zoellicks emphasis on trade and the Middle East, they say, reflects his long-standing association with the US administration. Is he pushing what is really good for the developing countries, or key priorities for the Bush administration? a former senior World Bank official asks rhetorically. Zoellick served five years as US trade ambassador under US president George W Bush, and then as deputy secretary of state.
Others have been even more scathing, arguing that his stint as US trade ambassador undermined his moral authority, especially among the developing world. In an interview last year trade expert Jagdish Bhagwati recalled: [Zoellicks] behaviour throughout Cancun [WTO ministerial meeting in 2003] was one of contempt for the developing countries. The most important reason Cancun failed was because Bob Zoellick couldnt accept the fact that the G20 stood up to the US, so he instructed [chairperson Luis Ernesto] Derbez to shut it down. Bhagwati added. He was so conscious of American power.
Others point out that the Bank has lost a vast amount of valuable human capital in recent years, especially during the tumultuous Wolfowitz era. The question is why key posts such as chief economists for Asia and Middle East are still vacant, says one Bank staffer. No one is doing macroeconomic policy or macro thinking anymore. Weve lost the capacity and credibility in this domain.
Zoellicks six strategic themes nevertheless help adapt the Banks business model to new global realities. Advancing a trade agenda is seen as vital by many development specialists because of the links between trade and economic expansion in developing countries. And support for the Middle East is justified because Middle East instability irradiates, says Naim.
And overall, the strategy has lent the Bank another leg of credibility, says executive director Wijffels. Four of the strategic themes centre on client segmentation by focusing on Arab countries, low-income countries, MICs and fragile and post-conflict states.
Zoellick has fought hard to expand the Banks private sector role. Private sector development and the creation of small businesses spur investment, jobs, opportunity and hope, he said last month.
To this end, he has empowered the multilateral lenders private sector arm, the International Finance Corporation, to remarkable effect: this year was the first year in which the IFCs commitments from its own account, and of financing resources it mobilized from the private sector, exceeded that of the World Bank itself. And overall, the private sector lender increased its funding by 34% to $16.2 billion in the past year. Moreover, the institution for the first time made a one-time $500 million contribution to the replenishment of IDA, funded out of its $2 billion in profits last year. The corporation has been trying over the last couple of years to increase our focus on real poor countries and the bottom of the pyramid, Lars Thunnel, IFCs executive vice president tells Emerging Markets. I felt it very important if we could help the World Bank Group and the poor.
Zoellick has also moved quickly to reach out to the 95 MICs countries with annual per capita incomes between $936 and $11,455 and bring them back into the fold. In the first months of his term, he offered sweeteners on loans to MICs, lowering interest rates and onerous fees, and making the pricing mechanism more transparent. By engaging with MICs, you generate income for the institution to be financially sound, says ED Studart.
The Bank can compete with private capital by financing MIC countries high-priority projects such as infrastructure and energy required to support ongoing economic expansion. It can also provide top-quality advice and technical support, either combined with loans or freestanding, and increasingly on a cost-sharing or recovery basis, says former Bank vice-president Linn.
But countries like China and Venezuela are now able to fund infrastructure projects, says Doug Hellinger, co-chairman of The Development GAP, a policy research group based in Washington, DC. I think the Bank would like to think its irrelevance is due to the capital markets, but it is really due to the conditions on its lending, Hellinger says.
Over the past decade the Bank has lost a significant chunk of business in middle-income countries partly because it turned away from infrastructure, and in part because of other finance sources, says Bruce Jenkins, policy director of the Bank Information Center, a watchdog group in Washington, DC.
In a revamp of its business model to boost MIC business, the Bank has simplified policies and procedures to respond more quickly to requests; it provides more sub-sovereign lending and is unbundling loans from consulting services.
Yet the success of the MIC strategy remains an open question: This agenda seems to be moving slowly, and it is unclear how much MIC business the Bank can reclaim given Chinese, Indian and Brazilian external financing, says Jenkins.
Experts agree that engaging with MICs is key to maintaining the Banks relevance. Despite their higher income levels, 70% of the worlds poor reside in middle-income countries, and a Bank partnership with governments could attack poverty that afflicts millions. According to the Independent Evaluation Group, the Banks internal watchdog, the bank must step up its efforts: to be increasingly effective in the MICs, the WBG needs to go well beyond doing business as usual, says Vinod Thomas, IEGs director general. That includes economic work, knowledge exchange, policy inputs, technical support. The IEGs evaluation on MICs also finds considerable scope for letting the countries themselves help shape priorities for global programmes thereby allowing them to be far more involved in the delivery of these programmes.
On urgent global challenges including climate change, the MICs and particularly the large emerging economies known as the BRICs (Brazil, Russia, India and China) are seen as part of the problem as well as part of the solution. A dynamic relationship between the Bank and these countries would promote knowledge transfer on biofuels and the expansion of food production that could help temper rising fuel and food prices. Zoellick perceived correctly that it was misleading to abandon MICs because the institution would be less effective, says Studart.
As more countries transition to middle-income levels, they lose competitiveness against low-income countries. They [MICs] would appreciate the broader experience the Bank can bring in terms of how other countries grew rapidly even with higher wages, says a former senior Bank official.