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The US puts the World Bank under renewed fire

by David Ibemere

October 16, 2017 | 1:49 pm
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It cannot be much fun running the World Bank these days. Apart from the complaints of the institution’s perennially fractious staff, the multilateral lender has seen increased competition from other sources of finance over the past two decades. Now it faces rising criticism from its largest shareholder.

 

Donald Trump’s administration, never likely to be a great fan of a global institution that sends American money abroad, has complained that the bank lends too much to countries such as China, which can borrow elsewhere.

 

In the past, the response of the bank’s president, the American Jim Yong Kim, has been to roll with the punches rather than standing up for the institution’s founding principles. This year he tried to win over Mr Trump by helping to create and administer a fund for women’s development set up by Ivanka Trump, the president’s daughter.

 

But the charm offensive seems to have had little effect. The US is objecting to the fact the bank continues to lend a large amount of money to middle-income countries, and is threatening to withhold its contribution to a general capital increase unless changes are made.

 

There is a debate to be had about exactly what holes in Beijing’s financing the bank needs to fill. But Mr Trump’s objections are almost certainly motivated, at least in part, by the desire to not give money to what he sees as the US’s economic enemy number one. If the bank folds and gives Mr Trump what he wants, its credibility will be badly damaged.

 

In an odd twist, it is China itself that has represented the biggest threat to the World Bank’s dominance of providing subsidised credit to emerging markets. By 2010, the activities of huge institutions such as the China Development Bank and the China Export-Import Bank meant that China’s overseas development lending outstripped the World Bank’s for the first time.

 

More recently, the advent of institutions such as the Asian Infrastructure Investment Bank, of which China is the biggest shareholder, has raised the possibility that the centre of development finance has moved from Washington to Beijing. This puts yet more pressure on Mr Kim to secure US financing.

 

In reality, the shift has been exaggerated. The creation of the AIIB, whose other member governments can block China from making financing decisions, involves placing Chinese money under plurilateral governance, rather than letting it roam the world at Beijing’s whim. The Chinese government has asked the AIIB to help fund the infrastructure projects in its vast Belt and Road initiative. The bank has responded that Belt and Road is a good idea, but that any lending it does will have to be subject to its standards on environmental and human rights safeguards and transparency.

 

In that context, the World Bank would do better to stick to its guns rather than start contorting itself into peculiar postures in order to please Mr Trump. In any case, official development assistance of all kinds has been supplanted by private lending and investment, and by remittances from overseas migrants. Sheer volume of cash no longer equals policy influence: the bank’s role now stands or falls on the quality of the advice it gives.

 

It is hard not to feel for Mr Kim. He may not have been the best candidate for the job, but his position has been made very difficult by Mr Trump’s attitude. Yet he should not allow the institution to be pushed around by the whims of one shareholder. The bank should make its decisions on whom to lend to on the criteria it has painstakingly established, not on the basis of political expediency.

 

 

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by David Ibemere

October 16, 2017 | 1:49 pm
  |     |     |   Start Conversation

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