An Open Memo to the President of the World Bank
April 19, 2012
On April 16, 2012, the Board of Directors of the World Bank elected Jim Yong Kim to succeed Robert Zoellick as its president. While there was little doubt that Kim would be confirmed as president, his selection was not without controversy. In particular, a series of quotes from early in Kim’s career seemed to question the efficacy of the private sector in generating lasting economic growth in the developing world. Although these quotes were old and, quite possibly, taken out of context, they caused significant concern among many pro-growth development practitioners and influential Republicans supportive of the World Bank. Further, it signaled a potential misunderstanding of the current development landscape. Immediately following his election, Kim made a strong and astute statement in an interview with the BBC, asserting that “market based growth is a priority for every single country.” It reflects Kim’s recognition that the World Bank cannot fight the last war on development. His next step should be to lay out his vision for the future of the World Bank.
The challenge now is for Dr. Kim to build on his BBC interview. If this represents a one-off, then it would not only be a personal failure for the new president, but also a significant institutional failure for the World Bank. It would make Kim and the bank irrelevant to the grand challenges of our time, when both are uniquely positioned to impact global economic development. Although there are risks to Kim’s tenure at the World Bank, there are immense opportunities, especially in light of the recent general capital increase. Kim should take a variety of steps that will reenergize the World Bank as the premier development organization. This should include targeted outreach to Republican members of the U.S. Congress; an agenda that aims to capture the power of the private sector and reform the World Bank itself; and the selection of key advisers who can implement this agenda. If Kim were to propose this path forward in a speech early on, he would confound his critics and likely win some allies. Any speech should begin with a simple declaration: the end to extreme poverty in the world is in sight, and the World Bank must do its utmost to help to eradicate it.
With the Republicans likely to maintain a majority in the U.S. House of Representatives and possibly regain control of the Senate, garnering Republican support is critical to the success of Dr. Kim’s presidential term. Establishing open lines of communication with the Congress is paramount to success, and Kim must pick the right person to handle this relationship. Further, if Kim implements the reform agenda outlined below, it will likely win him friends on both sides of the aisle on Capitol Hill. However, that agenda will not necessarily translate into a willingness to support future monetary support in light of the current budgetary situation. There is a limited appetite within Congress for additional World Bank appropriations. Kim should keep in mind that in 2007, when then-President Paul Wolfowitz was embroiled in an internal revolt by the World Bank staff, donor governments discussed the possibility of walking away from their International Development Association (IDA) contributions as part of the conflict. There are scenarios where donor governments could do something similar if Kim pursues the wrong policies. In order to continue to meet IDA obligations, it may be possible for the World Bank to achieve this through a surge in International Bank for Reconstruction and Development lending to middle-income countries; however, there is little enthusiasm in Congress for expanding such lending. If this happens, Kim will need to be equipped to navigate both the internal politics of the World Bank and the domestic politics of the bank’s largest shareholder.
The Reform Agenda
Jim Yong Kim should move to implement an agenda that seeks to reform and strengthen existing arms of the World Bank, as well as redirect the energies of the organization toward the new development landscape. Specifically, this means focusing on the following areas: (1) improving the World Bank’s capacity to work with the private sector; (2) renewing an emphasis on country governance; (3) strengthening the bank’s role in post-conflict and fragile states; (4) continuing to expand anticorruption programs in client countries; and (5) building on some of outgoing President Zoellick’s signature programs in key areas.
- Improving interaction with the private sector. The private sector is the engine of growth in the developing world. A recent report by the UK Department for International Development stated that 9 out of 10 new jobs in the developing world are private-sector jobs. There is tremendous opportunity for the World Bank to work more closely with the private sector, but all too often the organization fails to use the right people or instruments in this relationship. This is unfortunate, but the solution lies close at hand. To handle the private sector, President Kim should turn to the International Finance Corporation (IFC), the development finance arm of the World Bank. First, Kim should end the internal replenishment of IDA from IFC profits, which since 2007 totals nearly $2 billion. IFC could use this money to make higher-risk investments, fund its technical assistance with an emphasis on investment climate advice, and set aside a portion to increase funds for mainstream IFC investments. Second, IFC should expand its advice, research, and organizational consulting on investment climate that it provides to governments. Third, where appropriate it would be useful for the World Bank to adopt the human resource policies of IFC with a focus on hiring individuals who have private-sector experience, especially if they are expected to work with the private sector.
- Renewing an emphasis on country governance. In line with expanding IFC’s technical advice on investment climate, the World Bank should expand its work with democracy and governance. To some this might sound like an endorsement of the Bush administration’s “Freedom Agenda,” but strengthening governance, democracy, and civil society has important knock-down effects in encouraging investment by the private sector in the developing world. Historically, an emphasis on public management, procurement, and audits formed part of the broader governance reform agenda. These are areas where the World Bank should focus on building capacity for governments in the developing world. The new World Bank president can draw on a wealth of knowledge that exists at the bank but that is frequently not utilized. Deploying this knowledge and capacity should complement IFC’s work helping countries improve their business and investment climate.
- Strengthening the bank’s role in post-conflict and fragile states. In recent years, the World Bank has limited its role in post-conflict and fragile states, even as the number of states in these two categories has increased. The bank resists involving itself in these countries, because of hesitancy to work with the military and a fear that it might be viewed as taking sides in a conflict. This is unfortunate, because bilateral aid agencies are often not the best actors to work in these environments due to perceived, and often real, biases. The World Bank, in contrast, is a more objective player in providing technical assistance and other support. No one expects the World Bank to stabilize a situation or arbitrate lingering political disputes, but its technical knowledge would be extremely useful in creating new institutions (finance ministries, central banks, and other offices key to economic growth) and in reforming existing ones. The World Bank need not view itself as the lead actor in these situations, but it can be an important force multiplier. If the World Bank sees part of its role as reaching the poorest, then it must find a way to impact those in the most dangerous environments around the world.
- Anticorruption programs in client countries. Robert Zoellick made tackling corruption in the developing world a priority for the World Bank. Corruption is an important barrier to economic growth in emerging market economies; it stifles commerce, reduces individuals desire to enter the formal economy, and deters investment by foreign companies that face stringent legal requirements in their home countries. The World Bank, both as a lender and as a provider of technical assistance, can and should offer advice and help to emerging market economies in tackling an issue that stymies growth. This further complements the work of IFC in improving the investment climate and the bank’s expanded work in country governance.
- Building on Zoellick’s key initiatives. The first inclination of a new head of an organization is to put his or her stamp on that place, which frequently includes ending initiatives of the outgoing head. In the case of the upcoming transition at the World Bank, it would be a great disservice if three Zoellick-era programs ended. Specifically, President Kim should continue the transparency index, the focus on trade, and the Arab Spring program, all of which are important. First, the transparency index is part of the broader aid effectiveness regime that has developed over the past few years. It assists in helping to benchmark the World Bank’s anticorruption efforts. Second, trade capacity is a global public good that transcends national borders. The World Bank retains an enormous reservoir of knowledge, which it should apply to help countries implement trade agreements. Finally, Kim should continue to place special emphasis on the Arab Spring states—Tunisia, Egypt, Libya, and others. These countries are in a strategic region of the world, and as they emerge from decades of authoritarian misrule, they deserve the support of the World Bank’s technical assistance and other instruments to help them right the ship of state.
Dream Team—Implementing the Reform Agenda
President Kim should carefully consider the individuals he selects to fill key advisory slots. Although, he is experienced in public health, he is not an expert in the lending and technical assistance work that forms the core of the World Bank’s efforts. Luckily there is a deep bench of individuals in Washington and around the globe who can assist Kim in implementing the ambitious agenda outlined above. To deal with the fallout from the quotes from earlier in his career, Kim should appoint a vice presidential level senior counselor who can help him bridge the gap between the World Bank and congressional Republicans. Three good choices for that position are former undersecretary of state Paula Dobriansky, former representative Jim Kolbe, and current World Bank special representative for North America Craig Albright (a senior adviser to Robert Zoellick).
Next, Kim should consider creating two new vice presidential positions. One would serve as vice president for conflict and coordinate the World Bank’s efforts in post-conflict and fragile states. This would elevate the bank’s work in these areas both institutionally and globally. In selecting someone to fill this position, Kim should consider candidates who not only have experience in this area but are also comfortable with the military—not something that is easy for many World Bank employees. To smooth this transition, it might be wise to consider either a former Canadian defense minister or high-ranking officer or an individual from one of the Nordic countries, such as former Danish defense minister Gitte Lillelund Bech. The second new vice president would deal with governance and further define the World Bank’s anticorruption objectives. Former World Bank Institute director Daniel Kaufmann’s expertise in public-sector and regulatory reform, development, governance, and anticorruption makes him a strong choice for the position. Kim may also want to consider former Spanish foreign minister Anna Polacio for this role.
The next vice president for human resources and chief of staff should be ready to seriously rethink human resources and not be afraid to break some eggs in the process. The current country director for Ukraine, Belarus, and Moldova, Martin Reiser, would be a solid candidate for head of human resources, while the World Bank’s director for country services, Kyle Peters, would be an appropriate pick for chief of staff. As low-income countries move toward prosperity, the private sector is increasingly crucial in sustaining economic progress. The next vice president for private-sector development should therefore have innovative ideas to significantly boost the role of the private sector in recipient countries. A suitable choice for this position would be Bulgarian finance minister Simeon Djankov or the current president and CEO of the Overseas Private Investment Corporation, Elizabeth Littlefield. Knowledgeable on financial management, infrastructure, private-sector development, and public-enterprise reform, Paul Bermingham would be a sound candidate for vice president of operations policy and country services.
Aside from the president himself, the title of executive vice president of IFC is arguably the most important position in the World Bank. The head of IFC will only become more important if the reforms outlined above are implemented, thus the individual picked will make or break IFC’s new role. Historically this position is filled by a European. The nominee should be an expert in finance with an appetite for using existing World Bank relationships in new ways. The current and former heads of FMO (Dutch version of IFC), Nanno Kleiterp and Michael Barth, would both be noteworthy appointees, though the appointment of a European with dual citizenship in an emerging Asian country would be a good tactical move. Finally, Kim must make some political decisions about how to fill three managing director slots. In recognition of the changing nature of the world economy and development priorities, he should look to pick a significant individual from China, Latin America, and Africa to fill these three positions. Shengman Zhang, a veteran of the World Bank and well-liked former managing director, would be a good choice to provide Kim with a Chinese voice. The Former Colombian minister of finance and recent candidate for World Bank president, Jose Antonio Ocampo, is the obvious pick from Latin America. His selection would also signal willingness by Kim (and the United States) to engage with voices that seek a change in direction for the World Bank. Finally, former South African finance minister Trevor Manuel is an ideal choice to represent African interests. Should Kim decide to keep any of the current managing directors, Sri Mulyani Indrawati of Indonesia would be the obvious choice.
Daniel F. Runde is director of the Project on Prosperity and Development and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Conor M. Savoy is assistant director of the CSIS Project on U.S. Leadership in Development.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2012 by the Center for Strategic and International Studies. All rights reserved.