The Bank doesn't mean the World to anyone

Ajay Banga is tipped to become World Bank president in the wake of his two immediate predecessors leaving behind unfinished terms and at a time the Bank's role is once again under question

In early January 2019, Jim Yong Kim resigned as the World Bank president midway through his second term. Some of those in the World Bank-International Finance Corporation (IFC) group behaved as if they knew about it already. But the lesser mortals who were there at that time — including this writer — were left numb with shock and dismay. 

Shock, because Dr Kim was a formidable leader with charisma and a proper backstory, and he could deliver a kick-ass Ted Talk. He was appointed as the World Bank president in 2012 by Barack Obama — the United States, the Bank’s largest shareholder, usually appoints its president — despite having no background in finance. But he did well to leverage the background he did have, as co-founder of Partners in Health, a provider of medical care in poor countries, as an advisor to the World Health Organization, and as someone who did significant work in the fight against tuberculosis and AIDS. Dr Kim hobnobbed with public figures. A fund he set up to help women entrepreneurs appeared to have so much backing from Donald Trump’s daughter — even though Dr Kim was an Obama appointee — that in water cooler talks it came to be called the Ivanka fund.

And dismay, because he left midway through his second term to join Global Infrastructure Partners, which describes itself as an independent fund that works to improve infrastructure for the community. Dr Kim said he was leaving so he could make the greatest impact on issues like climate change and infrastructure deficit in emerging markets.

Our offices in those days were full of puzzled faces. If expressions could speak, they would have said: “Dude, isn’t that what the World Bank Group does?”

A strategy document drilled into our heads by Mengistu Alemayehu, the South Asia director who sharply enhanced IFC’s investments in India and the region, had three pillars:

• Infrastructure
• Inclusion, encompassing financial, social, gender, and frontier areas
• Sustainable growth, including tackling climate change

The two things Dr Kim wanted to focus on — infrastructure and climate change — were right there. But, at least, he served nearly a term and a half. 

David Malpass, Dr Kim’s successor, will not complete even his first term. He will be leaving by June, a year before his term ends. This is the bigger bolt because the perceived reason for Mr Malpass’ exit is said to be his reputation as a “climate-denier”.

Mr Malpass, who began a five-year term in 2019, did face big challenges in the shape of the Covid-19 pandemic and the war in Europe. But what appears to have felled him is his approach to climate change. 

Before he came to the Bank,

Mr Malpass was under secretary for international affairs in Trump’s treasury department and was not known to have a track record in the area of climate change. But one can argue he did not leverage — as Dr Kim did — the background he did have.

At a New York Times event last September, Mr Malpass was asked about the damage caused to the planet by the burning of fossil fuels. His response, as the NYT reported after his resignation, was: “I’m not a scientist.” 

As responses go, that is beyond defensive and can almost pass off as demure. It made the Bank look diminutive in the face of the biggest challenge facing the world. The climate-denier tag, fair or not, dogged Mr Malpass. The climate lobby, including former US vice-president Al Gore, campaigned for his ouster. 

That said, Mr Malpass alone cannot be held responsible for making the Bank look diminutive. It has been facing tough questions for years about its role and place in the world. That would be natural for any organisation that has been around for three quarters of a century. It is the responses to those questions that define the organisation and shape its future.

The World Bank-IFC Group is not the only big fund house going around these days. Sure, the Group’s involvement does send a strong signal to the rest of the world that a project or company is kosher, but this comes at a cost. In my time at the IFC, I heard about more than one company that was not too keen on taking IFC funding because of the number of hoops through which we made them jump. This was especially true of start-ups, who had many a VC fund wooing them. IFC’s funding was neither cheap nor was it quick.

In comparison, CDPQ, the Canada-based fund whose office is downstairs to IFC’s in New Delhi’s Aerocity, and which was poaching people from IFC, took bigger and bolder bets that could legitimately claim to shape a company. Similarly, the National Investment and Infrastructure Fund, whose chief, Sujoy Bose, is ex-IFC, has quickly ratcheted up a large portfolio.

Newer challenges to the Bank have emerged in the shape of the New Development Bank, earlier referred to as the BRICS Bank, and the US International Development Finance Corporation. That is not counting the private sector investment funds (one of which now boasts a former World Bank president on its rolls).

This is not the first time the Bank Group is facing questions about its place in the world. In the middle of the 1990s, the half-a-century-old institution was a target of critics both from the right as well as left. As an NPR article from 2005 points out, those on the right said the Bank’s lending was wasteful and no longer needed. Critics on the left said the Bank was doing more harm than good.

James D Wolfensohn, who became the World Bank president in 1995, paid heed to the critics. During his 10 years, he made the Bank more open and transparent and realigned it to focus on development focused on people, not just numbers. His campaign against global poverty was a precursor to Dr Kim’s goal of eradicating extreme poverty.

Former Mastercard CEO Ajay Banga, picked last night as the US nominee for World Bank president, will have to channel his inner Wolfensohn and listen to the critics, even if it might be more tempting to dismiss them as disgruntled former employees.