The World Bank must come to terms with its shrinking global mandate and refocus its mission or face irrelevance, according Peter Woicke, managing director of the World Bank Group and executive vice president of its private sector arm, the International Finance Corporation (IFC), in an exclusive valedictory interview with Emerging Markets.
The world’s largest development lender must face up to the fact that the mid-income countries to which it has traditionally lent money – and which therefore have made up the bulk of its income – are for the most part no longer borrowers. “The Bank needs to figure out how to deal with the fact that China, Russia and East Asia won’t borrow from the Bank any more, yet they still want to have certain development expertise,” says Woicke, who steps down from the World Bank Group this week.
The challenge facing the Bank, according to Woicke, is “how to remain relevant” in providing technical expertise, aside from its traditional policy of lending. “I don’t think the Bank has fully figured out how to provide these advisory services,” he says. “If the need arises, and I think it might, perhaps the Bank needs to shrink its focus.”
Woicke’s comments suggest that the World Bank may be forced into becoming something other than what its name implies. “There are still ‘frontier’ countries with a huge need for the Bank. But there are other places where the Bank needs to focus much more on technical assistance,” he says.
His remarks come as the search to find a successor for World Bank president James Wolfensohn heats up. Wolfensohn, who is due to step down at the end of May, announced his decision not to run for a third term earlier this year, when it became clear that the Bush administration would not back another bid for his presidency. Speculation over his successor is now focusing on Peter McPherson, a former director of USAID, as well as John Taylor and Anne Krueger, number two at the US Treasury and IMF respectively.
Acknowledging the enormity of the challenge facing Wolfensohn’s successor, Woicke wryly points out “the next president is going to have to be a really good manager.”
He also says that at present, the reallocation of the Bank’s resources “is not fast or efficient enough. Its major focus should be on the quicker allocation of its resources.”
Staying on track
Yet Woicke denies the widespread charge that the Bank has lost its focus under Wolfensohn by seeking out too may mandates. World Bank staff have said that the increased NGO-focus and faith-based initiatives, to name a few so-called ‘soft’ development issues, “leave us constantly confused about what the flavour of the day is.”
“I disagree [with that charge],” says Woicke. “I would call this the criticism of the old hardcore World Bankers. The issues that Wolfensohn has brought up, some of the ‘soft’ issues, are very, very important for development.”
Still, senior staff at the Bank are increasingly wary of the turn the Bank’s objectives have taken over the last decade under Wolfensohn. “The question is: can we retool ourselves so we can be relevant for [mid-income countries] and do better than, say, a top flight consulting firm, while not foreswearing macroeconomic policy advice? This is the crux of the matter,” says one staffer.
This whole question has been exacerbated by the focus on poverty, according to the staffer: “Staff have felt that if they wanted to get any kudos they had to overemphasize this. Consequentlly governments, for example in East Asia, think that we are only capable of singing to one tune.”
“The mission of the Bank ought to be development – broadly. If we want to be a World Bank, we can’t say we’re only focusing on poverty, That’s where we went wrong.” he adds. “We’ve created a justification for ourselves in one sentence, chiselled down to one catch-phrase. Just like ‘freedom’ in Iraq, ours is ‘poverty’.”
Defending the record
Such criticism also has resonance for the IFC, the institution Woicke has run for the last five years. Under his watch, the Bank’s private sector arm has ploughed into the world’s least developed countries in a bold attempt to introduce private sector efficiencies, under the mantle of poverty alleviation.
It is an approach that has courted much scepticism, and the relevance of the institution itself has been called into question by figures such as Ken Rogoff, a Harvard economics professor and former chief economist of the IMF. In fact, senior staff at the World Bank themselves are often heard calling for the demise of their smaller sister. “It’s an anomaly and should be abolished,” another senior staffer told Emerging Markets.
But on this issue, Woicke remains resolute: “The biggest success of this institution would be if someone put out the lights, say in 25 years, when we are no longer needed,” he says.
“But now we really need to focus the IFC on the countries and companies of the Third World. They need us because the medium term financing is just not there.”
The IFC, he says, has evolved from simply being a project financier for emerging markets to what he calls the choice provider of financial services for emerging markets. “We should provide financial services which the private sector cannot,” he says. “I wouldn’t like to go back to the old days at the IFC. IF that happens then the Ken Rogoff’s of this world will have their way and the IFC would have to be abolished.”