Brookings: Topics - World Bank

Good Things Grown in Scaled Packages: Africa's Agricultural Challenge in Historical Context

John McArthur — Mon, 20 May 2013 12:42:00 -0400

INTRODUCTION

In recent years agriculture has experienced a renaissance of attention among economists and policymakers, especially those focused on sub-Saharan Africa. This heightened attention has been driven partly by research insights, partly by policy initiatives, and partly by a recognition that governments and major international development institutions had been neglecting the issue for many years. It has also been motivated by emerging trends in particular countries like Malawi, which implemented an ambitious small-holder subsidy program starting in 2005 and subsequently registered its first two consecutive years with average cereal yields above two tons per hectare in 2009 and 2010, according to recent Word Bank data.

One indicator of the renaissance is a sizeable increase in official development assistance (ODA) directed towards agriculture. ODA for agriculture was consistently in the range of $4 billion to $5 billion for the decade before 2006. Since then, it has experienced a significant jump, reaching more than $8 billion in 2010. Concurrently average African cereal yields per hectare experienced a slight uptick, rising above 1.3 tons per hectare for the first time in 2009, after oscillating in the range of 0.9-1.2 t/ha for more than thirty years since 1975. It remains to be seen whether these yield increases reflect the beginnings of structural change.

Africa’s average yields still remain much lower than those in any other region. Although Africa’s total factor productivity in agriculture is estimated to have increased in recent decades its food production per capita remains essentially unchanged since 1960. Continued stagnation implies fast-growing costs in terms of lives affected, as the region’s population is slated to surpass one billion people by 2017 and approach two billion by 2050, according to the U.N. population division’s medium projections. A number of recent papers have underscored the major role of agriculture in reducing poverty and accelerating economic growth, so the stagnant trends have important macroeconomic implications. Esther Duflo and colleagues have also investigated questions related to farmer choices around the key input of fertilizer, motivated significantly by arguments surrounding the role of subsidies.

Read the full paper »

Downloads

Download the full paper

Authors

John McArthur

Image Source: © Mohamed Abd El Ghany / Reuters

Our Job Deficiency: A Challenge to the IMF-World Bank

Bessma Momani — Mon, 29 Apr 2013 14:12:00 -0400

At the IMF-World Bank meetings this past week, there were plenty of assessments of the state of the global economy that described the post-2008 recovery as anemic. Only a few went so far as to claim that the global economy is comatose. Yet, despite general agreement on the diagnosis, there was little consensus on how to solve the problem. Deciding on what tools and policies to use to stimulate growth is vital if we are going to cure the global economy of persistent enervation.

For a number of years, we've been led to believe that fiscal consolidation or austerity -- code for cutting government budgets -- is the best way to stimulate economic growth. Supposedly, it triggers a virtuous cycle: by increasing the confidence of the private sector, it spurs investment, which leads to economic growth, which further increases confidence, which in turn fuels more growth. It is this fiscal belt-tightening that eventually improves the health of the entire economy. So we are told by influential economists.

The highly prominent Harvard University's Rogoff-Reinhart thesis in 2010 which claimed to show that in highly indebted countries, economic growth will cease or retreat once a magic threshold debt level of 90 per cent of GDP is passed, is but one example among many studies that have been used to support this theory of "expansionary austerity." Now it seems that these two economists were omitting important data points and even succumbed to a simple coding error, which casts doubt on their analysis, and on the theory of expansionary austerity itself.

Fiscal consolidation can sometimes lead to economic growth; whether it will depends on a slew of other important variables such as interest rates (when they've already reached the zero lower-bound), the type of exchange rate in place (a floating exchange rate can help dampen the effects of fiscal contraction); and how supportive external demand is for an economy's goods and services. In the case of Canada in the 1990s, the country was fortunate that it undertook fiscal consolidation with the support of these three variables. For some countries this may not be the case, so we should be cautious of blanket arguments in favour of fiscal consolidation.

To be fair, Rogoff-Reinhart never did explicitly claim causation, only correlation. Note that the the Rogoff-Reinhart findings -- even if the original results still held -- tell us very little if low growth leads to high debt (think Japan) or if high debt leads to low growth (think Greece). This, however, did not stop influential policymakers and politicians like former Republican Vice-Presidential candidate Paul Ryan and European Commissioner Olli Rehn from taking these findings and spinning them to support their own political agendas.

The sole point however is not whether some growth occurs -- it is what kind of growth that should concern us; for growth that results from consolidation is more often anemic than vigorous. Moreover, economic growth alone is not a satisfying benchmark to measure the economy's recovery and future prospects. We need to ask: How do we get economic growth that is inclusive? And what indicators will tell us we're on the right track? "Inclusive" in this context is code for JOBS, and jobs are what we need to be tracking most closely. What is the point of having overall economic growth if this doesn't translate into people working and their wages increasing over time? Without job creation, we cannot increase consumption and generate the tax revenues needed to make important investments in education, health, R&D, and infrastructure, which taken together are prerequisites for long-term economic growth. In other words, without jobs, we get stuck on an anemic economic growth path. This is where we are now, and this is what needs the attention of world policymakers.

Indeed if there are any policy "heroes" of the Great Recession, they are the major central banks of the developed world. These institutions have proven remarkably adept at putting a floor under asset values, and a ceiling above credit spreads. But even with recourse to all this "unconventional" monetary policy, policymakers have still failed to put a ceiling above what truly matters: the unemployment rate. I hope that at the next IMF-World Bank meetings, job creation will be at the top of the agenda. And I hope that we will take the Rogoff-Reinhart thesis as a reminder that what's needed are careful assessments of what each country can do to create jobs, not a one-size-fits-all fiscal fix.

Authors

Bessma Momani

Publication: OpenCanada.org

Image Source: © Yuri Gripas / Reuters

How Effective Is the World Bank at Targeting Sub-National Poverty in Africa? A Foray into the Murky World of Geo-Coded Data

Laurence Chandy, Natasha Ledlie and Veronika Penciakova — Mon, 04 Feb 2013 14:11:00 -0500

How efficiently is aid allocated to reduce poverty? This question was explored over a decade ago in a paper by the economists Paul Collier and David Dollar. Their definition of a poverty-efficient allocation included, among other elements, the simple maxim that to maximize poverty reduction, “aid should be given to countries with large amounts of poverty.” When actual allocations were analyzed, it was shown that donor agencies paid heed to this rule. (Donors did less well at giving aid to countries with good policies, which, the authors argued, resulted in poverty-inefficient allocations overall.)

Intuitively, we would expect this maxim to apply at the sub-national level too: aid will contribute most to poverty reduction in a country when it is allocated to its poorest regions. An examination of sub-national aid allocations could therefore lead to greater understanding of donors’ commitment to poverty reduction. However, the limited availability of sub-national data on both aid and poverty incidence has precluded this level of analysis.

This is starting to change. As part of its “Mapping for Results” initiative, the World Bank has geo-coded its entire project portfolio of 2,900 active projects across 30,400 sub-national locations in 144 countries. Meanwhile, IFPRI’s Harvest Choice initiative has gathered together sub-national poverty data (using the international poverty line of $1.25 a day) from recent household surveys in 24 sub-Saharan African countries to draw detailed poverty maps covering half the continent. Both datasets contain, at a minimum, information at the first-order administrative level, meaning the province, state and governorate.

By combining these two datasets, we can begin to explore the allocative efficiency of aid with respect to poverty at the sub-national level—albeit for a single donor, in a subset of countries, at a particular point in time. The 24 countries we study contain 359 World Bank projects, which together are valued at nearly $19.3 billion.

By combining these two datasets, we can begin to explore the allocative efficiency of aid with respect to poverty at the sub-national level—albeit for a single donor, in a subset of countries, at a particular point in time. The 24 countries we study contain 359 World Bank projects, which together are valued at nearly $19.3 billion.

Our findings suggest that the World Bank rarely focuses its aid in the poorest regions in a country. However we refrain from casting judgment on the appropriateness of the Bank’s allocations due to unresolved questions concerning how targeting is measured, when targeting is appropriate, and how it can best be brought about.

Our point of departure is to consider the different ways in which aid can target the poor at the sub-national level. One approach is to devote aid to regions that have the largest number of poor people. At the country level, this would be equivalent to giving aid to India which is home to hundreds of millions of people living in extreme poverty. Alternatively, regions with the highest poverty rates could be prioritized. This compares to giving aid to Liberia where four in five people live below the poverty line.

For each approach we construct a poverty targeting index. This weights World Bank allocations within each country to generate a measure of how far they deviate from a poverty-neutral scenario in which aid is allocated equally across the country’s sub-national regions on a per capita basis. A positive score means that more aid is allocated to poorer regions within a country whereas a negative score implies a bias against poorer areas. (Note that allocations at a country level are assumed to be fixed; we do not consider the possibility of reallocating aid between sub-national units across national borders. We are also interested only in the incidence of poverty, not the distance of individuals from the poverty line.)

The results from the two indexes are illustrated in Figure 1a and 1b. As might be expected, the two sets of results diverge. For instance, in Kenya, the World Bank is effective at targeting sub-national regions with large numbers of poor people, but avoids those regions with the highest poverty rates.

While both these indexes capture something important, neither provides an adequate account of poverty targeting on its own. We therefore create a composite index which rewards aid allocations to regions where both the number of poor people and the poverty rate is high. At the country level, this would be equivalent to allocating aid to Nigeria, which accounts for the largest number of poor people in sub-Saharan Africa and has a high poverty rate of 68 percent. This index is illustrated in Figure 1c. In only 5 of 24 countries does the World Bank favor poorer regions as reflected by a positive score.

The indexes described thus far invite comparisons between countries as to where the World Bank is most or least assiduous in targeting poverty. However, such comparisons must be made with care as a score recorded in one country may not be achievable in another. This is because the potential for sub-national poverty targeting—the scope for deviating from a poverty neutral scenario—varies from country to country.

This potential is determined by imagining two extreme scenarios in each country: where all aid is reallocated to the poorest sub-national region and the richest sub-national region respectively. The extent to which these two regions differ from others and the country as a whole determines what potential there exists for donors to differentiate themselves from a poverty neutral position.

In our final index, we take the scores from our composite index and express them as a share of the maximum or minimum possible targeting score in each country. This index is illustrated in Figure 2. In only 1 of the 24 countries—the Gambia—does the World Bank approach anywhere near the maximum degree of poverty targeting. Interestingly, we find no relationship between the potential for sub-national targeting and the degree to which that potential is fulfilled.

There remain a number of limitations to our analysis. Not least is that the significance of our findings hinges on the extent to which differences between sub-national units provide an effective lens for viewing the underlying level of inequity in each country. The risk is that our results are more indicative of the design of our indexes and the idiosyncrasies of the data that they capture.

Nevertheless, we believe that measures of poverty targeting can serve as a useful tool in supporting aid effectiveness and poverty reduction efforts. Furthermore, analyses of this kind are likely to become more common. We are on the verge of an explosion in publicly available geo-coded aid data as donors respond to demands for greater transparency and seek to harness information technology solutions for improved coordination and accountability. (The most immediate constraint for poverty data is procedural: standardizing the reporting and collection of sub-national data from household surveys, consistent with the treatment of country-level data.)

Rather than supporting sweeping judgments about donor intentions and performance, the value of poverty targeting assessments comes from their being combined with other sources of information and informing dialogue between donors and partner governments. However, even for this more modest purpose, there remain some significant challenges.

Our analysis points to a number of questions that are likely to emerge in future discussions regarding the use of aid to target the poor, which we outline below. In anticipation of more frequent, sophisticated and complete analyses of poverty targeting, we believe these deserve proper attention.

What is the salient level of analysis for assessing the allocative efficiency of aid? The ability to drill downwards in assessing the allocative efficiency of aid need not stop at the immediate sub-national level. In the future, better data could allow analysis at the village, household or individual level. Indeed governments and donors are taking advantage of breakthroughs in biometric identification and cell phone ownership to design increasingly sophisticated social protection schemes that target poor individuals—a feat that the aid community considered a pipedream only a few years ago. However, just because individual targeting is possible does not make it appropriate for all types of aid; neither is sub-national targeting always appropriate, even where aid projects can be accurately geo-coded (for instance, the creation of an industrial park). The aid community should avoid the reductionist view that poverty impact can be equated with proximity to the poor.

What level of inequality or poverty is necessary for targeting to be an efficient strategy? The case for sub-national targeting is greatest when there is a danger that the benefits of aid will be captured by the non-poor. This seems less likely in countries where poverty rates are very high or where inequality is very low. In these settings, the transaction costs incurred in micro-level targeting may exceed the efficiency benefits of discriminating between different beneficiaries.

How should poverty targeting efforts be coordinated? A true assessment of an aid agency’s allocative efficiency in a country requires an understanding of what other organizations are funding, including the partner government and other donors. The prospects for poverty reduction are almost certainly higher if aid agencies heed the wishes of the partner government rather than each unilaterally deciding to concentrate their efforts in the country’s poorest region. Poverty targeting measures should be used to promote, rather than to evade, a greater division of labor, led by partner governments.

Authors

Laurence Chandy
Natasha Ledlie
Veronika Penciakova

Image Source: © Omar Faruk / Reuters

Global Lenders Rebuild Identities After the Crisis

Eswar Prasad — Fri, 12 Oct 2012 16:45:00 -0400

Just five short years ago, the International Monetary Fund and the World Bank were struggling for an identity. Practically the entire global economy, from poor to rich countries, was enjoying a golden period of growth and stability — and seemed unlikely to need a hand, or a handout, from either of these two institutions.

Those existential questions were erased by the global financial crisis that began in September 2008. And in dealing with the aftermath of that crisis, it has become clear that the world needs both institutions more than ever.

The IMF is now helping the euro zone cope with its sovereign debt crisis, going back to the fund’s roots at the Bretton Woods conference in New Hampshire in 1944, when it was set up to manage the fixed exchange-rate system among the major industrial economies.

The World Bank, also a Bretton Woods creation, is helping low-income economies deal with the collateral damage from the financial crisis, as well as declines in world trade and the surge in commodity prices.

Yet even as their angst over their usefulness to the world has dissipated, both institutions now face a different challenge: adapting to the rapidly shifting structure of the world economy.

Emerging market economies now account for an increasing share of global gross domestic product and the major share of global growth. With the advanced economies strapped for cash and facing rising levels of public debt, the emerging markets will determine not only the relevance but also the funding base of the Bretton Woods institutions.

These institutions cannot afford to ignore this growing middle. And, in fact, recent changes to governance structures will help in strengthening legitimacy among emerging markets. These economies are getting bigger voting shares, and the compositions of the governing boards are being altered to reflect the declining economic importance of advanced economies.

But both the IMF and the World Bank still have much to do to build trust among emerging markets and make a convincing case that they are not merely instruments of the rich economies.

Many emerging-market countries had to go hat in hand to the IMF during the currency and banking crises that hit them in the 1980s and 1990s. The fund’s assistance typically came with many conditions attached, requiring necessary but painful policy changes. This evolved into a deep distrust of the IMF, which came to be seen as a handmaiden of the advanced economies, parroting those countries’ views about free and unfettered financial markets.

Given their rising income levels, many emerging economies have also come to see the World Bank as less relevant to the challenges they face.

The role the IMF plays in dealing with the next phases of the euro zone debt crisis will influence the credibility it has with emerging markets.

The euro zone does not lack the financial wherewithal to stem the crisis. What it lacks is the political will. The European Central Bank has committed to buying sovereign bonds of euro zone countries that agree to undertake policy overhauls. The Spanish government has agreed to do its part by implementing fiscal austerity measures and other changes.

Disaster has been averted, but this comfort will not last for long. Markets may trust the ECB to keep its word, but they do not fully trust politicians to keep their end of the bargain. Recent riots on the streets of Greece and Spain show how difficult it will be for European governments to enact the necessary changes.

Europe, therefore, needs a credible and tough disciplinarian. The ECB remains the only institution that fills the bill. But for all the talk of conditions attached to ECB money, the pushback from countries like Spain that hope to benefit from the ECB’s largess will only intensify as their domestic political circumstances deteriorate.

And the pushback will continue even after commitments are made. The ECB cannot credibly threaten to retreat from its defense of any euro zone country that accepts its conditions, even if the commitments to undertake overhauls subsequently remain unfulfilled.

In short, Europe needs the IMF The question is whether the fund will now use its extraordinary leverage to set a course correction for Europe and for itself.

To serve as an effective and honest broker, the IMF needs to restore its own credibility along with its broader legitimacy.

Early on in the crisis, the IMF pumped large sums of money into the European periphery. This money came with conditions but also twisted the fund into the position of looking through rose-tinted glasses at harsh realities, in order to rationalize its lending decisions.

Moreover, it cost the IMF some credibility to lend large amounts to a small economy like Greece’s. Many emerging-market policy makers viewed this as a double standard at work, noting that they would probably not have been able to count on such largess.

Without putting more of its own money at stake, the IMF is now in a position to speak the truth. To rebuild credibility, it will have to be blunt. In the case of countries like Greece, the understandable desire to play up the positives has to end. What is needed is a direct and open assessment of the prospects of each distressed economy and what it will take for each of those economies to regain its footing, either within or outside the euro zone.

The IMF should also take a broader view of what Europe as a whole needs. For far too long, the core euro zone economies have apparently held the view that different rules should apply to them compared with their less virtuous neighbors.

All of Europe needs to hear some harsh truths about what it will take for the euro zone to hold together and prosper. Using the power of its megaphone rather than its purse strings, the IMF can not only redeem its own credibility but also do a lot of good for Europe and the world economy.

As for the World Bank, in an era of rising incomes it is clear that the emerging markets do not need the institution’s money as much as they need its technical expertise. To stay relevant to this group, the institution must do a more skillful job of tying together policy advice on major macroeconomic issues, including fiscal and monetary policies, with more ‘‘micro’’ development issues, like health care and education.

Jim Yong Kim, the new president of the World Bank, has a distinguished record on innovative and nonideological approaches to development issues and policies to implement them at micro levels. This is exactly along the lines of what emerging market economies need.

The IMF and the World Bank have proved their worth in tough times and have become important instruments of change in rich and poor economies, respectively. The challenge they face in order to remain relevant in a fast-changing world economy is to retool themselves so that the countries in the middle, the fast-growing emerging markets, also see them as useful institutions that are not beholden to the club of rich countries and that adapt well to changing circumstances.

Authors

Eswar Prasad

Publication: New York Times

Image Source: © Yuriko Nakao / Reuters

A Conversation with Former World Bank President Robert Zoellick

Fri, 03 Aug 2012 18:00:00 -0400

Event Information

August 3, 2012
6:00 PM - 7:30 PM EDT

Online Only
Live Webcast

On August 3, Global Economy and Development at Brookings and the Aspen Strategy Group hosted former World Bank President Robert Zoellick for a conversation about global development, the fight against extreme poverty, and his time at the helm of the World Bank. With much of the world still recovering from the global financial crisis, efforts to reduce poverty have become even more challenging. Mr. Zoellick is uniquely placed to provide insight on global attitudes toward international aid and development goals. Mr. Zoellick recently stepped down as president of the World Bank after serving in that office for the past five years. He also has held several senior positions in the U.S. government, including deputy secretary of state and U.S. trade representative under President George W. Bush.

Brookings President Strobe Talbott provided introductory remarks and moderated the discussion with Mr. Zoellick, which included questions from the audience.

This event is part of the Brookings Blum Roundtable, an off-the-record annual forum for global leaders, entrepreneurs and practioners to discuss innovative ideas and advance groundbreaking initiatives to alleviate global poverty. The theme of this year’s roundtable is “Innovation and Technology for Development”.

Protection and Planned Relocations in the Context of Climate Change

Elizabeth Ferris — Wed, 01 Aug 2012 00:00:00 -0400

Note: This paper is part of the Legal and Protection Policy Research Series for the UN High Commissioner for Refugees Division of International Protection.

EXECUTIVE SUMMARY

Climate change is expected to lead to increased human mobility in the forms of migration, displacement and planned relocation of communities as areas become uninhabitable because of the effects of global warming. While considerable attention has been directed toward the first two categories – particularly from humanitarian actors and migration specialists – the third form of movement has received much less attention. Most of the experience with planned relocation of communities has occurred in the context of development projects. This paper seeks to contribute to the discussion on mobility and climate change by focusing on planned relocations of communities as an adaptation to climate change.

There are several different subcategories of people who may need to be relocated as a result of the effects of climate change, including:

people who need to be relocated from areas prone to sudden-onset natural disasters which are increasing in severity and intensity as a result of climate change (e.g. flood areas);
people who need to be relocated because their livelihoods are threatened by slow-onset effects of climate change (e.g. increasing drought frequency, salinisation of water resulting from sea level rise);
people who need to be relocated because their country or parts of their country face destruction from the effects of climate change (e.g. small island states facing sea level rise.)

Development actors, particularly the multilateral development banks, have many years of experience in relocating and resettling communities in order to implement development projects. This paper explores whether this experience may be relevant in considering relocations in the context of climate change. The term ‘development-forced displacement and resettlement’ (DFDR) refers to the involuntary displacement and resettlement of people and communities by large-scale infrastructure and other projects. The term relocation generally refers to the physical process of moving people and can be either temporary or permanent and either voluntary or forced. In contrast, the concept of resettlement as used by those working on development-displacement refers to a process to assist displaced persons to replace their housing, assets, livelihoods, land, access to resources and services and to enhance, or at least restore, their living standards. They are used in this way in this paper, while noting that the terms resettlement and relocation are often used interchangeably in the development-displacement literature.

The scale of development-induced displacement is enormous with millions of people displaced every year. The multilateral development banks have played the leading role in developing safeguards to prevent or minimize the impoverishment of communities resettled in projects which they finance. The underlying principles on which existing guidelines for DFDR are based can be summed up as follows:

Involuntary resettlement should be avoided where feasible.
Where it is not feasible to avoid resettlement, the scale of displacement should be minimized and resettlement activities should be conceived and executed as full-fledged sustainable development programs.
Meaningful consultation with the populations to be displaced should be an integral part of the process.
Displaced persons should be assisted to regain their productive activities and to restore and improve their livelihoods and incomes compared to the levels they enjoyed before the displacement.

In identifying the lessons learned from DFDR for planned relocations made necessary by the effects of climate change, this paper highlights the need to build on these principles by ensuring adequate financing for resettlement/relocation, advance planning, addressing the key role of land, considering the human rights of affected communities and learning from both the positive and negative experiences of DFDR.

One of the main difficulties in devising appropriate guidance for relocations in the context of climate change is the need for a clear internationally-accepted definition as to when an area is determined to be a) uninhabitable (or at risk of becoming such that relocation is necessary), and b) when the cause of the uninhabitability is the result of the effects of climate change. Both of these aspects are difficult to determine. Uninhabitability may be a dynamic continuum rather than a definitive end-state. And it is likely that the causes of uninhabitability are the result of multiple factors, making it difficult to determine the particular responsibility of climate change. Despite these difficulties, this paper focuses on the rights of those facing the prospects of losing their land and livelihoods because of environmental changes. This paper also focuses on internal relocation and does not deal with international relocation.

The paper develops a set of 22 preliminary understandings for upholding the rights of communities who are or will be relocated as a result of climate change. It is hoped that these preliminary understandings will be helpful in developing guidance for a range of stakeholders involved in relocating such communities.

The paper concludes by noting the necessity and the challenge of bringing together humanitarian, development and human rights actors along with climate change experts to develop general principles to ensure respect for the rights of those who are relocated and resettled because of climate change.

Downloads

Protection and Planned Relocations in the Context of Climate Change

Authors

Elizabeth Ferris

Publication: United Nations High Commissioner for Refugees

Image Source: Alberto Lowe / Reuters

Jim Kim’s Deepest World Bank Challenge

John McArthur — Fri, 20 Jul 2012 11:35:00 -0400

In his first major speech this week as World Bank president, Jim Yong Kim, stressed a goal of brokering solutions to support a world free of poverty. The World Bank’s success on this front hinges on more than technical debates over organizational strategy and design. Ultimately it depends on tackling the institution’s cultural ambivalence toward global policy goals, and an underlying mindset propagated by professional economists.

The Millennium Development Goals expire in 2015, midway through Dr. Kim’s initial term. Since their establishment as targets in 2000, the MDGs have been the world’s central reference point for fighting extreme poverty. They have helped spur a range of breakthroughs over the past decade, most prominently in global health, where Dr. Kim has long been at the forefront of innovation.

After the United Nations’ recent Rio+20 event, debates are wide open on setting goals for post-2015. Issues of extreme poverty, the environment, social equity and governance are all under consideration. As the world’s leading repository of technical development expertise, the bank’s economist-dominated staff will significantly inform deliberations.

Economists have important skills – I like to think, being one myself – but at the core we are trained in marginal analysis: to optimize based on existing constraints. For development goals, the question often needs to be flipped. Instead of asking “how far can we go with the resources at hand,” a goal-based approach asks: “what resources are needed to achieve the goal at hand?” Indeed health practitioners more instinctively think about goals as first principles, such as “what is needed to save this patient’s life?”

This epistemic divide helps explain why so few economists were prominent in the past decade’s global health breakthroughs, Jeffrey Sachs being the most notable exception. In 2001, most economists were still operating within budget constraints that global health leaders rejected as first premise. World Bank staff were left to optimize amidst financial and political constraints defined by their donor shareholders. The trend extended to other sectors, and a weird dynamic took hold by which many deemed the bank as the foot-dragging technocratic heavyweight in the global MDG effort. Even IMF macroeconomists would privately lament their sibling institution’s slow MDG movements.

To be sure, many World Bank leaders have provided strong leadership for the MDGs, dating back to the presidency of James Wolfensohn. Nicholas Stern and Francois Bourguignon were both profoundly committed as successive chief economists at the bank. But the MDGs never fully permeated the World Bank’s operations. Staff were not against the goals, yet the institutional culture did not compel MDG implementation as a mandate, nor did the board demand bureaucratic adjustments for the goals to be taken seriously at the country level. Last year, I even heard a bank economist say publicly that the MDGs were too ambitious for African communities to aspire to, something I had previously only heard staff say privately.

The World Bank’s MDG ambivalence mirrors a reticence in the broader economics community. While The Lancet, the eminent health journal, has published more than 1,000 articles referencing the MDGs over the last decade, the gold standard American Economic Review tallied only seven, the Quarterly Journal of Economics had four and the Journal of Political Economy had one. The specialty Journal of Development Economics did not even mention the MDGs until a 2007 article, and only in 12 other articles since. A search through roughly 3,700 World Bank policy research papers since September 2000 finds that only 89 mention the MDGs, slightly more than 2 percent.

Fortunately, Dr. Kim knows how to reframe institutional ambitions in the face of strong personalities, as he did with the “3 by 5” initiative to get 3 million people on AIDS treatment by 2005. To cement a goal-based World Bank for post-2015, two practical initiatives can help make inroads. First, there should be an independent evaluation of the bank’s contributions to the MDGs, with public review by July 2013. It should assess where the staff, board, and procedures have both helped and hindered. Second, staff should be tasked to recommend ambitious proposals for new global development goals, with emphasis on how the World Bank can help ensure success. For example, what might it actually look like to “get to zero” on extreme poverty by 2030? How could sustainability metrics be interwoven?

Cultural change is never easy in large public institutions. But as Dr. Kim said in his speech, “Progress is possible for everyone. Nothing is pre-determined.” With transparent self-assessment and a deliberate focus on global goals, the World Bank can translate its vast talent into leadership for many years to come.

Authors

John McArthur

Image Source: Jason Reed / Reuters

Global Development at a Pivotal Time: A Conversation with World Bank President Jim Yong Kim

Wed, 18 Jul 2012 13:30:00 -0400

Event Information

July 18, 2012
1:30 PM - 2:30 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

On July 18, Global Economy and Development at Brookings hosted World Bank Group President Jim Yong Kim for a conversation about supporting international development in a highly vulnerable global economy. Dr. Kim discussed the priorities for the World Bank under his new leadership, including the immediate priority to help developing countries maintain growth and progress against poverty in these volatile economic times.

A physician and anthropologist, Dr. Kim has dedicated himself to international development for more than two decades, helping to improve the lives of underserved populations worldwide. Prior to becoming World Bank president, Dr. Kim served as president of Dartmouth College. He is a co-founder of Partners In Health and a former director of the HIV/AIDS Department at the World Health Organization.

Brookings President Strobe Talbott provided introductory remarks. Kemal Derviş, vice president and director of Global Economy and Development, moderated the discussion with Dr. Kim to include questions from the audience. Viewers followed the conversation on Twitter using the hashtag #BIJimKim.

Video

Less Agreement Than Meets the Eye

Homi Kharas — Fri, 25 May 2012 00:00:00 -0400

Follow @BICampaign2012
Editor’s Note: For Campaign 2012, Bruce Jones, Thomas Wright and Jane Esberg wrote a policy brief proposing ideas for the next president on America’s role in the world. The following paper is a response to Jones, Wright and Esberg’s piece from Homi Kharas. Strobe Talbott and John-Michael Arnold also prepared a response arguing that political polarization in America is preventing the federal government from taking much-needed action on critical issues such as climate change and international security.

Bruce Jones, Jane Esberg, and Thomas Wright argue that the 2012 election is unlikely to have a major impact on the U.S.-led international order because the current administration’s position is driven not by ideology but by a realpolitik approach that recognizes two facts of life of the new world order: American reliance on the global economy and global reliance on American power. These facts are important drivers, but increasingly the U.S. position on foreign policy matters appears to have more to do with domestic politics and less with the issue at hand. Because Republicans and Democrats have quite different domestic political constituencies, the risk is that the elections will indeed generate important changes in how America relates to the rest of the world.

One red herring should be dismissed immediately. Although the political narratives strive to draw a contrast between the administration as accepting and managing America’s relative decline and a Republican rejection of decline and reassertion of American exceptionalism, there appears to be a middle ground between these two that best represents reality. The global economy and international financial system depend on the fact that the U.S. dollar is the unrivaled international reserve currency and global store of value, and the open global trading and foreign investment system is preserved by the unrivaled superiority of the U.S. military. Neither of these basic foundations of U.S. dominance is under serious challenge. America is, and will remain for decades, exceptional in these two regards. It is only in terms of less important indicators—such as the U.S. share of the global economy, of global manufacturing, and of global trade—that the United States is declining in relative terms. But that does not necessarily indicate a weakening of America’s global position. It could indicate a strengthening as more countries have a greater stake in the functioning of the global economic system and therefore depend more heavily on the foundations provided by the United States.

At the present juncture, a future administration will need to tackle two important issues: U.S. leadership of a new world order and the U.S. pivot toward Asia. In both matters, there do appear to be significant differences between the political parties that suggest the election outcome might have a more far-reaching impact on the world than suggested by Jones, Esberg, and Wright.

The international economic order is undergoing its most significant change since the Second World War. Historically, the main pillars to manage the global economy—the International Monetary Fund (IMF), the World Bank, the World Trade Organization, the Bank for International Settlements, and the Financial Stability Board—have been dominated by the financial and intellectual resources of the United States and its allies, particularly Europe. For most of this postwar period, the countries that make up the G7 accounted for at least two-thirds of global output, plus or minus a few percentage points when major events such as the 1970s oil price spikes temporarily upset the global equilibrium. G7 country banks and multinational corporations have also dominated global finance and trade. All these countries, as well as a number of smaller advanced economies, were committed to a market-based, open, globalized economy.

That dominance has shown signs of cracking since 2002. Last year marked the first time in the modern era that the G7 share of global output fell below one-half. Large, dynamic, emerging markets, mostly in Asia, but including Brazil, Mexico, and South Africa, have become important global players. These countries have focused on global rules that permit growth through a range of sometimes eclectic means rather than the current system that focuses on stability and common rules of the game for everyone. In view of the divergent objectives, management of the global economic system is under stress. The IMF has been unable to make progress in reducing global current account imbalances; the Doha Round of international trade talks has been stuck for a decade; proposed new banking regulations have placed a premium on stability; and almost no progress has been made on mitigating climate change.

In this environment, the United States, under the leadership of President George W. Bush, successfully brought together a new group of countries, the G20, as the self-appointed premier body for managing the global economy. There was considerable hope that the G20 would signal a reform of the international system to integrate emerging powers into the system of global governance. In practice, however, this effort is falling short. The emerging economies have taken a low profile in the G20. Reforms in other institutions like the IMF and the World Bank have proceeded at a glacial pace. And while the United States has a de facto veto on any global changes, it cannot achieve its goals without the support of its existing allies and new coalitions involving large emerging economies. Unfortunately for the United States, its traditional allies are growing weaker more rapidly than new alliances are being formed. That in turn is weakening the global reach of the United States.

International coalition building is an issue that divides Republicans and Democrats. The very phrase “global governance” is enough to trigger disgust among some of the Republican base. Senate Republicans denounced the IMF as a bailout machine that risks U.S. tax dollars for socialist ends. The IMF’s warnings against premature deficit reduction to avoid a double-dip recession are at odds with supply-side economic prescriptions. Republican candidates hold up Europe’s economy as an example of government excess. “Drill, baby, drill” would not advance the UN-sponsored global climate talks. In short, it is reasonable to think that the effort to reshape global institutions and achieve global agreements would look very different depending on the 2012 election outcome.

The election is also likely to affect the degree to which the United States pivots toward Asia. Republican candidates have expressed a far greater tilt toward the use of “hard” power in international affairs. That approach will complicate relationships with Asia and place the U.S.-China relationship, the most important single bilateral relationship in the world, on a different course. It may also imply that the focus of U.S. international engagement would continue to be on managing the legacy issues in the Middle East, rather than on turning toward Asia.

Jones, Esberg, and Wright argue that the differences between the parties will be minor in shaping America’s international order strategy. But in terms of global governance, the geographic focus of attention, and the lens of security versus economic interests, there may be marked differences in approach.

Downloads

Download Paper

Authors

Homi Kharas

Image Source: © Lee Jae Won / Reuters

Time to Rethink the Future World Bank President Appointment Process

Mwangi S. Kimenyi — Mon, 30 Apr 2012 10:47:00 -0400

Dr. Jim Yong Kim takes over the presidency of the World Bank with impeccable credentials as an expert in health. These credentials will serve him well. Dr. Kim will face many challenges as World Bank president and his leadership skills from serving as the head of a major U.S. university will certainly come handy. We congratulate Dr. Kim on his appointment and he deserves our support.

Dr. Kim’s appointment marked the beginning of a number of firsts for the World Bank. Since the inception of the two Bretton Woods institutions, it has been the tradition that the International Monetary Fund is headed by a European and the World Bank is headed by an American. This tradition has remained unchallenged since 1944, when the two institutions were created.

In many respects, the financial stake held by the United States and the Europeans justifies their monopoly on the leadership positions. It is a simple corporate governance model in which the largest shareholders carry most weight in making the critical decisions about leadership.

As a result, the leadership of these institutions has largely gone unchallenged by representatives of other regions. As a Korean-American, Dr. Kim will be the first head of the institution with a non-U.S. background. Korea is the first country developing country to graduate into a middle-income and advanced economy and is now a donor to the World Bank.

This is also the first time that the World Bank president selection process has been contested by well-qualified candidates from the developing world. The executive board at the bank acted appropriately by interviewing the candidates, even if the outcome was never in doubt. Given the predetermined selection process, there should be an independent review of governance procedures to ensure that going forward they are equitable, inclusive and transparent.

Times have changed—while it is true that during the 1940s the main international players were America and Europe, this is no longer true. Now we have China, India and Brazil and other emerging economies that are influencing global political and economic dynamics, and these changes need to be reflected at the highest levels of the World Bank and IMF.

Another major first during this last World Bank president selection was the fact that a woman was considered a leading candidate in the process. A number of American women reportedly were on the shortlist and an African woman supported by leaders of the continent put forward her candidacy. It gave Africa the chance to showcase the best it has to offer and also provided a credible case for changing the governance processes of the institution.

What the American President Must Do

President Obama must work to change the governance of the World Bank. He would be well-served to appoint a high level advisory panel to not only spearhead reform of the World Bank leadership selection process but also to assess the institution’s mission. The panel should have a year to report on its recommendations. There is a palpable sense that the World Bank is drifting along on an outdated set of priorities and the institution needs a “reset.” This kind of initiative would help respond to the calls for a new, transparent and merit-based governance framework that was raised by many during the selection process. It could also help the World Bank increase its relevance as the premier multilateral development institution leading on new and emerging issues ranging from climate change to gender to conflict and security. Such an outcome could also help the Obama administration shape a positive legacy out of a process that left many disappointed.

Authors

Mwangi S. Kimenyi

Image Source: Enrique Castro-Mendivil / Reuters

Banking on Jim

Domenico Lombardi — Thu, 26 Apr 2012 16:45:00 -0400

Editor's Note: This article was originally published in the May 2012 edition of Longitude, a monthly Italian publication on world affairs.

The newly-elected President of the World Bank – Dr. Jim Yong Kim – will have to establish himself as a thoughtful leader as he takes office in July, by pushing through a broad range of reforms that are not just desirable but vital for the institution’s long-term effectiveness. They range from enhancing the bank’s legitimacy through governance reforms to the adaptation of its responsibilities to a new reality.

The World Bank’s role in the development landscape has changed drastically. From that of benevolent monopolist in the early decades of its existence, it has now become a – still important, but no longer dominant – actor alongside entities like church groups, nongovernmental institutions and private philanthropists, all with the ability to leverage substantial resources.

Even among official donors, the World Bank has to confront the emergence of new actors, such as China; the so-called vertical funds, like the Global Fund; and even new actors, such as the Bank of South. The idea for establishing such a new bank just received a political endorsement at the latest BRICS Summit in March in New Delhi.

As a result of this proliferation, aid coordination has become inherently difficult, escalating transaction costs and increasing the likelihood of duplicating efforts. In the earlier days of development, the main donors could be counted on two hands. This is no longer possible as they exceed the sum of donor and recipient countries alike.

While total aid has been steadily increasing, it is not surprising that the average project size has been declining. The proliferation of aid actors puts greater strain on the capacity of recipient countries and skews their focus towards donor-driven relationships rather than towards the implementation of their nationally drawn strategies, decreasing aid effectiveness.

The fact that, while total bilateral aid has been rising steadily, the size of International Development Association – the World Bank’s concessional arm– has remained constant in real terms reflects, among other factors, a weak sense of ownership from emerging official donors.

As noted by Homi Kharas of the Brookings Institution, this points to the need for a significant overhaul of the bank’s governance arrangements. Unfortunately, those arrangements also include strengthening an open and merit-based selection process, as opposed to a system of nationality privileges, which Dr. Kim’s election has, however, only reconfirmed.

For the whole of the existence of the World Bank, the United States has held the presidency of the institution, while Western Europe has benefited from the same privilege at the International Monetary Fund, the Bretton Woods sister organization. It is clear that this informal agreement is no longer tenable and is utterly inconsistent with the spirit – and even the letter – of several G-20 press releases.

Looking forward, there are two more compelling challenges that the new president will have to address. The first is to better define the World Bank’s role vis-à-vis global public goods. So far, it has financed a number of global programs, but more on an ad hoc basis than as part of a comprehensive strategy. In fact, the World Bank has mainly focused on a country-based agenda, not least of all because it is itself a nation-based institution.

As a global multilateral financial institution, however, it seems best positioned to take the lead on the global public goods agenda, as it can best reconcile global convening power, analytical strength and financial firepower.

In fact, as a multilateral institution with a global membership, it is best positioned to overcome inevitable coordination problems that arise when formulating an actionable agenda in this domain.

The breadth and depth of the staff’s analytical skills give the World Bank the potential to connect the dots and shape a cross-cutting agenda ranging from climate change to marine conservation and pandemic diseases.

Differently from UN agencies, moreover, the World Bank also enjoys significant financial capabilities as it can borrow from financial markets to fund its wide range of activities.

Yet, to be effective in this context, it has to command the trust of its global membership, which will inevitably require, once again, reforming its governance framework.

The second challenge for Dr. Kim concerns the efficiency and effectiveness of the World Bank’s current operations. Too often, borrowers complain about the “cost of doing business” with the bank, citing long processing times for their loan applications.

Indeed, this is something that has created leverage for new donors to come in and establish themselves quite assertively. Chinese aid workers are considered in many recipient countries to be quite effective and, above all, fast.

Most importantly, the environmental and social standards the World Bank applies in appraising the financing of its operations, a few argue, have gone too far, to the point of hampering its effectiveness as a development institution.

Some borrowing countries complain that if one had to apply those same standards in Europe or the US, then many important projects would not be implemented.

At any rate, one can say that, if not the standards themselves, at least the way in which they are applied may bias the World Bank’s selection towards those projects that are perceived to be less risky by its staff and that reduce the likelihood of getting its staff into trouble.

To the extent that the current system skews staff incentives towards lower-risk operations, the borrower carries the ultimate risk of not being able to implement a certain project that the institution would have otherwise supported. Most likely, these unfunded projects would come with a higher risk profile, but from them a correspondingly higher return would materialize.

Shifts in the staff’s risk-bearing attitude have already been probed by the World Bank’s internal watchdog, which reported a “widespread perception among task team leaders that categorization of projects is driven by risk aversion rather than an empirical assessment of environmental and social risks.” This points to opportunity costs for the bank and, most importantly, for development.

Yet, given the unique nature of its mission, the World Bank should encourage innovation and experimentation, and it should remember that encouraging innovation goes hand in hand with the risk of failure.

The World Bank’s mandate is, in fact, inherently risky – so risky that markets are simply unable to operate where the bank is concerned. The answer to that is not to curtail the scope of activities and fundable projects, but to step up oversight and improve the bank’s accountability at all layers of its organizational pyramid.

Indeed, given that the World Bank, by design, typically operates in a non-market environment, it does need a high degree of “buy in” from its broader stakeholder community, which has to trust that the institution operates effectively and fairly in achieving its ultimate objectives. Once again, assessing and overhauling governance and oversight arrangements at all levels will be key.

Only to the extent that the new president is perceived to be willing to tackle these long-standing issues, will he be able to leave a personal mark on the institution.

Authors

Domenico Lombardi

Publication: Longitude

A World of Convergence

Kemal Derviş — Wed, 25 Apr 2012 11:56:00 -0400

For almost two centuries, starting around 1800, the history of the global economy was broadly one of divergence in average incomes. In relative terms, rich countries got even richer. There was growth in the poorer countries, too, but it was slower than rich-country growth, and the discrepancy in prosperity between rich and poor countries increased.

This “divergence” was very pronounced in colonial times. It slowed after the 1940’s, but it was only around 1990 that an entirely new trend could be observed – convergence between average incomes in the group of rich countries and the rest of the world. From 1990 to 2010, average per capita income in the emerging and developing countries grew almost three times as fast as average income in Europe, North America, and Japan, compared to lower or, at most, equal growth rates for almost two centuries.

This has been a revolutionary change, but will this 20-year-old trend continue? Will convergence remain rapid, or will it be a passing phase in world economic history?

Read the full piece and watch the related video on Project Syndicate »

Authors

Kemal Derviş

Publication: Project Syndicate

Kim Appointment May Spur Changes at the World Bank

Eswar Prasad — Fri, 20 Apr 2012 09:48:00 -0400

The World Bank has a new president, but many questions remain about whether the selection process was indeed transparent, open and merit-based, as promised by the leaders of the Group of 20 economies.

Whatever the flaws in the process, the outcome may prove to be good for the bank’s future.

The preordained selection of the U.S. nominee, Jim Yong Kim, perpetuates the advanced economies’ dominance of the top jobs at the major international financial institutions.

This tradition has become untenable and unjustifiable. The predetermined success of Dr. Kim’s nomination reflects how global governance continues to lag behind shifting economic realities. Emerging market economies are increasingly dominant in global trade, finance and output, but the advanced economies continue to maintain their positions of privilege at the helm of major international financial institutions.

The old guard, which comprises the major advanced economies that once dominated the global economic landscape, will not give up its privileges without a fight. Changes in the structure of global governance will require more forceful and coordinated actions by emerging markets.

Such coordination has proven easier in the context of fighting for larger voting shares at the international financial institutions; in this case there is a common purpose as all emerging markets have something to gain.

When it comes to competition for specific jobs, emerging market countries have so far allowed individual ambitions to prevail over their collective interests. These countries will need to become more unified in terms of their objectives and strategy, rather than just complain about the existing structure, in order to effect significant changes in global governance.

Yet despite all the legitimate complaints about the World Bank selection process, a closer look reveals a far more open process than in the past.

When the top job at the International Monetary Fund opened up last year, European leaders immediately laid claim to putting one of their own at the helm. This was roundly and suitably criticized.

The United States has taken a different approach by simply putting forward the candidate it deemed best for the World Bank’s top job and letting him be judged on his merits. There has been no statement by any U.S. administration official that Dr. Kim should get the job simply because he is American.

There were two other credible and well-qualified candidates who got to make a case for themselves: Ngozi Okonjo-Iweala, the Nigerian finance minister and former World Bank managing director, and José Antonio Ocampo, the former Colombian finance minister and U.N. official.

In a major departure from past practice, Dr. Kim was chosen by a majority vote of the 25-member World Bank board, rather than by an artificial “consensus.”

The fact that the vote was stacked in favor of the U.S. nominee, given the nearly automatic support from other major advanced economies, is a matter of realpolitik rather than unfairness. If the emerging markets want to change the structure of power at global institutions, they will have to start wielding their growing economic clout more strategically and with unity of purpose.

Meanwhile, the Obama administration should at least be congratulated for its courage and vision in reaching beyond the typical slate of candidates — current or former government officials, typically with backgrounds in economics or diplomacy. If in fact this nomination was a fait accompli, then the United States has in some respects made it easier for the rest of the world to accept.

Dr. Kim’s impressive credentials as an expert on health and development issues, as well as his leadership experience at a major U.S. university, put him in a good position to initiate a much-needed reorientation of the World Bank’s role in global development.

The institution continues to lend to fast-growing middle-income countries like China and India that do not really need the relatively modest sums of money it has to offer. Instead, the bank should focus on its expertise in creating and implementing delivery systems for health and other public services. In other words, its money and human resources would be better spent catalyzing and helping to scale up innovative solutions to basic development problems.

Dr. Kim is not an economist, and some critics have suggested that he lacks a deep understanding of macroeconomics and finance. This is hardly a disqualification in itself. The truth is that macroeconomists (myself included) have made only limited progress in understanding what drives growth. There remains a lot that we cannot explain, and our models are inadequate in accounting for most of the cross-country differences in growth. An open-minded approach to seeing what works and what doesn’t rather than being bound by any specific models or theories might actually be an advantage.

This is not to say that economists are superfluous. Analyzing data carefully and creating analytical frameworks to understand what the data are telling us are critical functions. But it is presumptuous to argue that a noneconomist cannot possibly understand basic economic concepts as well as an economist. After all, Christine Lagarde, a lawyer by training, seems to have done quite well as the finance minister of France and now as the head of the International Monetary Fund. In many developing economies, applying basic principles of economics effectively can generate far better outcomes than more sophisticated prescriptions.

More importantly, Dr. Kim seems to have the intellectual self-confidence to surround himself with competent people, including intellectual iconoclasts, who can ask tough questions and seek answers that are not bound by ideology but are largely pragmatic. For instance, while growth plays a huge part in the fight against poverty, Dr. Kim may be right that growth is not the panacea it is often made out to be. Indeed, even a country like China that has accomplished remarkable reductions in poverty thanks to sustained growth has come to realize that a growth-at-all-costs strategy has enormous costs, including social conflict and environmental degradation.

Dr. Kim’s willingness to openly question conventional wisdom about growth and its benefits implies that he will face significant resistance from the entrenched bureaucracy at the World Bank. His status as an outsider may prove to be his strength in reforming the institution and making it more responsive to its poorer member countries’ needs.

Given Dr. Kim’s credentials and his unconventional background, he may also be just the person to deliver some real change to the governance structure of the institution. This is where support of this U.S. administration, which has shown a positive attitude towards multilateralism, could be a considerable asset.

If Dr. Kim can create alliances with emerging markets, then he could — with U.S. support — shake up a power structure that leaves advanced economies, and Europe in particular, with disproportionate power in setting the institution’s agenda. And this is a change that’s essential for the World Bank to maintain legitimacy in the eyes of developing economies as an institution that cares more about their interests than in carrying out the agendas of advanced economies.

The World Bank also needs to use the leverage it has in poor countries more aggressively to improve domestic public institutions and take a stand against corruption. This is no easy task, but the institution must clearly be seen to be serving its true constituents, the poor and economically underprivileged in developing economies, rather than the elites who often siphon away many of the benefits of growth.

But ultimately the World Bank’s legitimacy will also be determined by how it manages its own governance rather than just prescribing reforms to its member countries. Dr. Kim needs to set in motion changes to the Bank’s governance structure that give developing countries a greater say in setting the institution’s agenda and make the process of choosing his successor quite different from the one he just experienced.

He also needs to articulate and implement a clear vision of how the World Bank can improve its role in outcomes that really matter to the poor around the world.

If Dr. Kim can accomplish these objectives, he could turn out to be the tonic that the institution needs to reinvigorate itself and do some real and lasting good.

Authors

Eswar Prasad

Publication: The New York Times

Development Challenges for the Global Economy: A Conversation with Ngozi Okonjo-Iweala

Thu, 19 Apr 2012 14:30:00 -0400

Event Information

April 19, 2012
2:30 PM - 3:30 PM EDT

Saul/Zilkha Rooms
The Brookings Institution
1775 Massachusetts Avenue, NW
Washington, DC 20036

On April 19, the Africa Growth Initiative at Brookings hosted Ngozi Okonjo-Iweala, the Federal Republic of Nigeria’s coordinating minister for the economy and minister of finance, for a discussion on current challenges to economic development and the changing role of international financial institutions. As the African Union’s nominee for president of the World Bank, Ngozi Okonjo-Iweala had a unique vision for global development, prioritizing job creation and economic diversification, as well as policies that enable youth and empower women.

Minister Okonjo-Iweala is currently in her second term as Nigeria’s finance minister. In this role, she has implemented economic reforms which resulted in sustained national growth rates and nearly $18 billion of national debt relief. Before her appointment as finance minister, Okonjo-Iweala served for nearly 21 years as a development economist at the World Bank and ultimately held the position of managing director, where she was instrumental in supporting the bank’s reform agenda.

Kemal Derviş, vice president and director of Global Economy and Development at Brookings, provided introductory remarks. After the program, Minister Okonjo-Iweala took audience questions. Brookings Senior Fellow Mwangi Kimenyi, director of the Africa Growth Initiative, moderated.

Participants followed the conversation on Twitter using hashtag #AGINgozi.

Video

Audio

Development Challenges for the Global Economy: A Conversation with Ngozi Okonjo-Iweala

Participants

Panelists

The Honorable Ngozi Okonjo-Iweala

Coordinating Minister for the Economy and Minister of Finance
The Federal Republic of Nigeria

The State of the Global Economy: A Conversation with Secretary of the Treasury Tim Geithner

Wed, 18 Apr 2012 08:30:00 -0400

Event Information

April 18, 2012
8:30 AM - 9:30 AM EDT

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

On April 18, Global Economy and Development at Brookings hosted Secretary of the Treasury Tim Geithner in a conversation about the state of the global economy. In conjunction with this week's spring meetings of the International Monetary Fund (IMF) and World Bank, as well as the G-20 finance ministers, Secretary Geithner discussed the strengthening U.S. recovery, and the economic challenges and choices the U.S. will face as a country and globally.

Secretary Geithner joined the Department of the Treasury after serving as president and chief executive officer of the Federal Reserve Bank of New York for six years. Prior to that, Secretary Geithner worked for the Department of the Treasury, eventually serving as the Under Secretary of the Treasury for International Affairs. He has also worked at the IMF where he was director of the Policy Development and Review Department.

Kemal Derviş, vice president and director of Global Economy and Development, provided introductory remarks. David Ignatius, columnist at The Washington Post, moderated the discussion with Secretary Geithner to include questions from the audience.

This event was live Tweeted using hashtag #BIGeithner.

Video

Audio

The State of the Global Economy: A Conversation with Secretary of the Treasury Tim Geithner

Transcript

Uncorrected Transcript (.pdf)

Event Materials

20120418_geithner

Participants

Moderator

David Ignatius

Columnist
The Washington Post

Panelists

Tim Geithner

U.S. Secretary of the Treasury

Charting a New Course for the World Bank: Three Options for its New President

Johannes F. Linn — Tue, 17 Apr 2012 11:55:00 -0400

Since its 50th anniversary in 1994, the World Bank has been led by four presidents: Lewis Preston until his untimely death in 1995; then James Wolfensohn, who gave the institution new energy, purpose and legitimacy; followed by Paul Wolfowitz, whose fractious management tossed the World Bank into deep crisis; and most recently, Robert Zoellick, who will be remembered for having stabilized the bank and provided effective leadership during its remarkably swift and strong response to the global financial crisis.

Throughout these years of ups and downs in the bank’s leadership, standing and lending, the overall trend of its global role was downhill. While it remains one of the world’s largest multilateral development finance institutions, its position relative to other multilateral financing mechanisms is now much less prominent. Other multilateral institutions have taken over key roles. For example, the European Union agencies and the regional development banks have rapidly expanded their portfolios, and new “vertical funds” such as the Global Fund for AIDS, Tuberculosis and Malaria have become major funding vehicles. At the same time, according to a 2011 OECD Development Assistance Committee report multilateral aid has declined as a share of total aid. Meanwhile, non-governmental aid flows have dramatically increased, including those from major foundations like the Bill and Melinda Gates Foundation, but also from new internet-based channels bundling small individual donations, such as Global Giving. The World Bank— which 20 years ago was still the biggest and most powerful global development agency and hence a ready target for criticism— today is just one of the many institutions that offer for development to the poor and emerging market economies.

Against this backdrop, the World Bank, its members and Dr. Kim face three options in its long-term trajectory over the next 10 to 20 years: 1) the bank can continue on its current path of gradual decline; 2) it might be radically scaled back and eventually eliminated, as other aid channels take over; or 3) it can dramatically reinvent itself as a global finance institution that bundles resources for growing global needs.

There is no doubt in this author’s mind that the World Bank should remain a key part of the global governance architecture, but that requires that the new president forge an ambitious long-term vision for the bank – something that has been lacking for the last 30 years – and then reform the institution and build the authorizing environment that will make it possible to achieve the vision.

Option 1: “Business as Usual” = Continued Gradual Decline

The first option, reflecting the business-as-usual approach that characterized most of the Zoellick years of leadership will mean that the bank will gradually continue to lose in scope, funding and relevance. Its scope will be reduced since the emerging market economies find the institution insufficiently responsive to their needs. They have seen the regional development banks take on increasing importance, as reflected in the substantially greater capital increases in recent years for some of these institutions than for the World Bank in relative terms (and in the case of the Asian Development Bank, even in absolute terms). And emerging market economies have set up their own thriving regional development banks without participation of the industrial countries, such as the Caja Andina de Fomento (CAF) in Latin America and the Eurasian Development Bank in the former Soviet Union. This trend will be reinforced with the creation of a “South Bank” or “BRIC Bank”, an initiative that is currently well underway.

At the same time, the World Bank’s soft loan window, the International Development Association (IDA), will face less support from industrial countries going through deep fiscal crises, heightened competition from other concessional funds, and a perception of reduced need, as many of the large and formerly poor developing countries graduate to middle-income status. It is significant that for the last IDA replenishment much of the increase in resources was due to its growing reliance on advance repayments made by some of its members and commitments against future repayments, thus in effect mortgaging its future financial capacity. The World Bank’s status as a knowledge leader in development will also continue to be challenged with the rise of research from developing countries and growing think tank capacity, as well as a proliferation of private and official agencies doling out advice and technical assistance.

As a result, under this option, over the next 10 to 20 years the World Bank will likely become no more than a shadow of the preeminent global institution it once was. It will linger on but will not be able to contribute substantially to address any of the major global financial, economic or social challenges in the future.

Option 2: “The Perfect Storm” = Breaking Up the World Bank

In 1998, the U.S. Congress established a commission to review and advise on the role of the international financial institutions. In 2000, the commission, led by Professor Allan Meltzer, released its recommendations, which included far-reaching changes for the International Monetary Fund and the World Bank, most of them designed to reduce the scope and financial capacities of these institutions in line with the conservative leanings of the majority of the commission’s members. For the World Bank, the “Meltzer Report” called for much of its loan business and financial assets to be devolved to the regional development banks, in effect ending the life of the institution as we know it. The report garnered some attention when it was first issued, but did not have much impact in the way the institution was run in the following 10 years.

In 2010, the U.S. Senate Foreign Relations Committee released a report on the international financial institutions, which called on them to aim toward “succeeding in their development and economic missions and thereby putting them out of business”. However, it did not recommend a drastic restructuring of the multilateral development banks, and instead argued strongly against any dilution of the U.S. veto right, its lock on leadership selection, and its voting share at the IMF and World Bank. While not dramatic in its short-term impact, these recommendations were likely a strong factor in the subsequent decisions made by the Obama administration to oppose a substantial increase in contributions by emerging markets during the latest round of capital increase at the World Bank to push for an American to replace Robert Zoellick as World Bank president. These actions reinforced for emerging market countries that the World Bank would not change sufficiently and quickly enough to serve their interests, and thus helped create the momentum for setting up a new “South Bank.”

While there seems to be no imminent risk of a break-up of the World Bank along the lines recommended by the Meltzer Report, the combination of fiscal austerity and conservative governments in key industrial countries, compounded by a declining interest of the emerging market countries in sustaining the institution’s future, could create the perfect storm for the bank. Specifically, as governments face constrained fiscal resources, confront the increasing fragmentation of the multilateral aid architecture, and take steps to consolidate their own aid agencies, they might conclude that it would be more efficient and fiscally prudent to rationalize the international development system. There is a obvious overlap on the ground in the day-to-day business of the World Bank and that of the regional development banks. This is a reality which is being fostered by the growing decentralization of the World Bank into regional hubs; in fact, a recent evaluation by the World Bank’s Independent Evaluation Group concluded that “[r]ather than functioning as a global institution, the bank is at risk of evolving into six regional banks”. With the growing financial strength, institutional capacity and dynamism, and the apparently greater legitimacy of regional development banks among their regional members, shareholders might eventually decide that consolidation of the World Bank’s operations with those of the regional development banks, in favor of the latter, is the preferred approach.

There are lots of reasons to think that this drastic step would be difficult to take politically, financially and administratively, and therefore the inertia common to the international governance architecture will also prevail in this case. However, the new World Bank president would be well advised to be prepared for the possibility of a “perfect storm” under which the idea of eviscerating the World Bank could gain some traction,. The more the bank is seen to fade away, as postulated under Option 1 above, the greater is the likelihood that Option 2 would be given serious consideration.

Option 3: “A Different World Bank” = Creating a Stronger Global Institution for the Coming Decades

Despite all the criticism and the decline in its relative role as a development finance institution in recent decades, the World Bank is still one of the strongest and most effective development institutions in a world. According to a recent independent ranking of the principal multilateral and bilateral aid institutions by the Brookings Institution and the Center for Global Development “IDA consistently ranks among the best aid agencies in each dimension of quality”.

A third, radically different option from the first two, would build on this strength and ensure that the world has an institution 10 to 20 years from now which helps the global community and individual countries to respond effectively to the many global challenges which the world will undoubtedly face: continued poverty, hunger, conflict and fragility, major infrastructure and energy needs, education and health challenges, and global warming and environmental challenges. On top of this, global financial crises will likely recur and require institutions like the World Bank to help countries provide safety nets and the structural foundations of long-term growth, as the bank has amply demonstrated since 2008. With this as a broad mandate, how could the World Bank respond under new dynamic?

First, it would change its organizational and operating modalities to take a leaf out of the book of the vertical funds, which have been so successful in tackling major development challenges in a focused and scaled-up manner. This means substantially rebalancing the internal matrix between the regional and country departments on the one hand and the technical departments on the other hand. According to the same evaluation cited above, the World Bank has tipped too far toward short-term country priorities and has failed to adequately reflect the need for long-term, dedicated sectoral engagement. The World Bank needs to fortify its reputation as an institution that can muster the strongest technical expertise, fielding team with broad global experience and with first rate regional and country perspective. This does not imply that the World Bank would abandon its engagement at the country level, but it means that it would systematically support the pursuit of long-term sectoral and sub-sectoral strategies at the country level, linked to regional and global initiatives, and involving private-public partnership to assure that development challenges are addressed at scale and in a sustained manner.

Second, recognizing that all countries have unmet needs for which they need long-term finance and best practice in areas such as infrastructure, energy, climate change and environment, the World Bank could become a truly global development institution by opening up its funding windows to all countries, not just an arbitrarily defined subset of developing countries. This would require substantially revising the current graduation rules and possibly the financial instruments. This would mean that the World Bank becomes the global equivalent of the European Investment Bank (EIB) and of the German Kreditanstalt fuer Wiederaufbau (KfW)—development banks that have successfully supported the infrastructure development of the more advanced countries.

Third, the World Bank would focus its own knowledge management activities and support for research and development in developing countries much more on a search for effective and scalable solutions, linked closely to its operational engagement which would be specifically designed to support the scaling up of tested innovations, along the lines pioneered by the Bill and Melinda Gates Foundation.

Fourth, for those countries with strong project management capacities, the World Bank would dramatically simplify its lending processes, following the example of the EIB. This would make it a much more efficient operational institution, making it a more attractive partner to its borrowing member countries, especially the emerging market economies.

Fifth, the membership of the World Bank would fix some fundamental problems with its financial structure and governance. It would invite the emerging market economies to make significantly larger contributions to its capital base in line with their much-enhanced economic and financial capacities. It would revamp the bank’s voting and voice rules to reflect the changed global economic weights and financial contributions of emerging markets. The bank would also explore, based on the experience of the vertical funds, tapping the resources of non-official partners, such as foundations and the private sector as part of its capital and contribution base. Of course, this would bring with it further significant changes in the governance of the World Bank. And the bank would move swiftly to a transparent selection of its leadership on the basis of merit without reference to nationality.

Conclusion: The New World Bank President Needs to Work with the G-20 Leaders to Chart a Course Forward

The new president will have to make a choice between these three options. Undoubtedly, the easiest choice is “business-as-usual”, perhaps embellished with some marginal changes that reflect the perspective and new insights that an outsider will bring. There is no doubt that the forces of institutional and political inertia tend to prevent dramatic change. However, it is also possible that Dr. Kim, with his background in a relatively narrow sectoral area may recognize the need for a more vertical approach in the bank’s organizational and operational model. Therefore, he may be more inclined than others to explore Option 3.

If he pursues Option 3, Dr. Kim will need a lot of help. The best place to look for help might be the G-20 leadership. One could hope that at least some of the leaders of the G-20 understand that Options 1 and 2 are not in the interest of their countries and the international community. Hopefully, they would be willing to push their peers to contemplate some radical changes in the multilateral development architecture. This might involve the setting up of a high-level commission as recently recommended by this author, which would review the future of the World Bank as part of a broader approach to rationalize the multilateral system in the interest of greater efficiency and effectiveness. But in setting up such a commission, the G-20 should state a clear objective, namely that the World Bank, perhaps the strongest existing global development institution, should not be gutted or gradually starved out of existence. Instead, it needs to be remade into a focused, effective and truly global institution. If Dr. Kim embraces this vision and develops actionable ideas for the commission and the G-20 leaders to consider and support, then he may bring the right medicine for an ailing giant.

Authors

Johannes F. Linn

World Bank Leadership Should Reflect Emerging Economies

Colin I. Bradford — Wed, 28 Mar 2012 17:32:00 -0400

The U.S. nominee for the World Bank presidency, South Korean-born physician Jim Yong Kim, is one of three candidates for the post, along with Nigerian Finance Minister Ngozi Okonjo-Iweala and former Colombian finance minister Jose Antonio Ocampo. According to Colin Bradford, the presence of several viable candidates—from different parts of the world—for the World Bank presidency means that the entire international community could have a say in selecting the next World Bank president, rather than the U.S. nominee being automatically confirmed. This change in the nominating process, says Bradford, is good for the Bank because it reflects growing demands for representation from emerging economies.

Video

Change World Bank Nominating Process