Reinventing the World Bank, Again

With three nominees now in the running to become the World Bank’s next president – Nigerian Finance Minister Ngozi Okonjo-Iweala, former Colombian Finance Minister José Antonio Ocampo, and the United States’ nominee, Dartmouth College President Jim Yong Kim – this is the moment to step back and assess the Bank’s trajectory. Unless the Bank’s next president has a clear vision of the way ahead, and the gravitas to withstand the institution’s internal pressures, he or she will be swallowed up by its complex machinery and unwieldy processes.

Global attention has been focused on weighing the three candidates’ strengths and qualifications, particularly their economic and financial credentials. But the real challenge lies in providing direction for the World Bank that reflects the world as it is, and re-calibrating the Bank’s tools accordingly. Inevitably, the new course hinges in part on recognizing that economics and finance, while integral elements of all areas of the Bank’s activities, are no longer the institution’s main drivers.

The World Bank’s traditional instruments have been (and still are) low-interest loans, interest-free credits, and grants. But the Bank’s core philosophy has rested on lending, with interest, to middle-income countries and channeling the ensuing funds to the poorest countries eligible for assistance. Today, owing to the conditionality of its loans, the Bank is losing competitiveness vis-à-vis the plethora of actors, both public and private, that crowd the development scene. Meanwhile, the Bank is emerging as a vital – indeed, indispensable – source of expertise and technical assistance, as well as a provider of global public goods.

Building on these strengths, the Bank must be willing to understand its client countries’ realities, rather than pontificate, and to balance its country-based work with its global roles. While lending is progressively thinned out and retained only for the poorest countries, the Bank must adopt the lean hub-and-spoke structure of a strategic consultancy or a “knowledge bank.” The organization must reformulate its mission, moving away from the idea of being the “West’s Bank,” the “BRICS’ Bank,” or, for that matter, a bank at all.

What is unambiguous today is a growing intolerance for bad governance and corruption – a collective rejection evident in countries as diverse as Burma, Congo, Russia, and Bolivia, not to mention Arab countries from Syria to Morocco. At the same time, the biggest threat to the international order comes from failing, failed, post-conflict, and conflict-ridden states.

For the past two decades, as part of the soul-searching triggered by the collapse of communism, the World Bank has been seeking to make governance and anti-corruption efforts integral to its work on economic growth and poverty reduction in the developing world. But, beyond eloquent rhetoric, these changes have been incremental, and have been superimposed on the Bank’s operations, rather than becoming part of its organizational DNA.

The Bank has been too focused on itself and its reputation, and not enough on the countries that it advises and in which it operates, while institution-building has been considered to be embedded in the growth agenda. As a consequence, law, which constitutes the foundation of institution-building, has been regarded as no more than a toolbox. Property rights, contract enforcement, entrepreneurial conditions, and free and competitive product and labor markets were proclaimed to be part of the economic framework – a misconception recently restated by the former World Bank economist and current development pundit William Easterly.

Moreover, the traditional interpretation of the Bank’s Articles of Agreement imposed a proclaimed “neutrality” that translated into a readiness to overlook the nature of its client countries’ regimes and their lack of popular accountability. Ironically, the same World Bank whose former president, Robert McNamara, transformed it almost five decades ago, at the height of decolonization, into a key instrument in the fight against communism, today views the so-called “Beijing Consensus,” by which the Chinese Communist Party maintains an iron grip on the country, as a viable development model.

In this context, a “knowledge bank” needs to address three challenges. It must enhance support for the private sector and prioritize infrastructure, in a broad sense, in accordance with its importance for individual initiative. It also must strengthen its know-how in capacity-building, particularly administrative capacity-building, with an emphasis on its legal-institutional aspects. Finally, it must place anti-corruption and good-governance programs at the core of its mission.

The international community cannot afford a World Bank that, anchored in the world of the past, loses its relevance. No other institution can fulfill the Bank’s formidable potential as a center of knowledge and a coordinator of development policies. The mandate of the Bank’s next president will be crucial in making or breaking an institution that the world desperately needs in the century ahead.

Ana Palacio, a former Spanish foreign minister and a former senior vice president of the World Bank, is a senior fellow and lecturer at Yale University.

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