Sunday, November 23, 2014
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Whose World Bank?

NEW YORK – US President Barack Obama’s nomination of Jim Yong Kim for the presidency of the World Bank has been well received – and rightly so, especially given some of the other names that were bandied about. In Kim, a public-health professor who is now President of Dartmouth College and previously led the World Health Organization’s HIV/AIDS department, the United States has put forward a good candidate. But the candidate’s nationality, and the nominating country – whether small and poor or large and rich – should play no role in determining who gets the job.

The World Bank’s 11 executive directors from emerging and developing countries have put forward two excellent candidates, Ngozi Okonjo-Iweala of Nigeria and Jose Antonio Ocampo of Colombia. I have worked closely with both of them. Both are first-rate, have served as ministers with multiple portfolios, have performed admirably in top positions in multilateral organizations, and have the diplomatic skills and professional competence to do an outstanding job. They understand finance and economics, the bread and butter of the World Bank, and have a network of connections to leverage the Bank’s effectiveness.

Okonjo-Iweala brings an insider’s knowledge of the institution. Ocampo, like Kim, brings the advantages and disadvantages of being an outsider; but Ocampo, a distinguished professor at Columbia University, is thoroughly acquainted with the World Bank. He previously served not only as minister of economics and finance, but also of agriculture – a critically important qualification, given that the vast majority of the developing countries’ poor depend on farming. He also brings impressive environmental credentials, addressing another of the Bank's central concerns.

Both Okonjo-Iweala and Ocampo understand the role of international financial institutions in providing global public goods. Throughout their careers, their hearts and minds have been devoted to development, and to fulfilling the World Bank’s mission of eliminating poverty. They have set a high bar for any American candidate.

Much is at stake. Almost two billion people remain in poverty in the developing world, and, while the World Bank cannot solve the problem on its own, it plays a leading role. Despite its name, the Bank is primarily an international development institution. Kim’s specialty, public health, is critical, and the Bank has long supported innovative initiatives in this field. But health is only a small part of the Bank’s “portfolio,” and it typically works in this area with partners who bring to the table expertise in medicine.

Rumors suggest that the US is likely to insist on maintaining the perverse selection process in which it gets to pick the World Bank’s president, simply because, in this election year, Obama’s opponents would trumpet loss of control over the choice as a sign of weakness. And it is more important for the US to retain that control than it is for emerging and developing countries to obtain it.

Indeed, the more powerful of the emerging markets know how to live within the current system, and they may use it to their advantage. They will, in effect, obtain an IOU, to be cashed in for something that is more important. The Realpolitik of the moment makes fighting over the presidency unlikely; America may well prevail. But at what cost?

Should America continue to insist on controlling the selection process, it is the Bank itself that would suffer. For years, the Bank’s effectiveness was compromised because it was seen, in part, as a tool of Western governments and their countries’ financial and corporate sectors. Ironically, even America’s long-term interests would be best served by a commitment – not just in words, but also in deeds – to a merit-based system and good governance.

One supposed achievement of the G-20 was an agreement to reform the governance of the international financial institutions – most importantly, how their leaders are selected. Since expertise on development by and large lies within the emerging and developing countries – after all, they live development – it seems natural that the World Bank’s head would come from one of those countries. To maintain a cabal among developed countries, whereby the US appoints the World Bank president and Europe picks the International Monetary Fund’s head, seems particularly anachronistic and perplexing today, when the Bank and the Fund are turning to emerging-market countries as a source of funds.

While the US, the international community, and the Bank itself repeatedly emphasize the importance of good governance, a selection procedure that de facto leaves the appointment to the US president makes a mockery of it.

Okonjo-Iweala put the matter forcefully in an interview with the Financial Times: what is at stake is a matter of hypocrisy. The integrity of the advanced industrial countries, which have a majority of the votes at the World Bank, is being put to the test.

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    1. CommentedJonathan Lam

      Gamesmith94134: Whose World Bank?

      French Finance Minister Francois Baroin, have gone even further, claiming that Europe “has done its part,” and that it is now up to other countries to do theirs.

      What would Mr. Baroin expected in the outcome of the stronger Euro at 1.3 to a dollar? Since it sounds relevant to the strength of its Euros, it is the first haircut to foreigners’ currencies under the 1% bank loan credits. Does your investment lose itself through the processes of fiat Euros? Perhaps, Mr. Baroin knew the stock is coming to an adjustment, then, the other countries should dump the Stock and buy their bonds and compress 50—75% off their investment since ECB and IMF from getting their 2 trillion equity or credits for salvage the EU debts.
      Some are disgust at the déjà vu again, it is not even July; but some may reminiscent of “October” as EFSF failed to aggregate a targeted capacity again. Just after the sale in Spain’s debt failed its target sum, and Greece future is bleak, so is the PIIGS. The ECB also said the interest rate on its deposit facility would remain at 0.25 percent, and the rate on the marginal lending facility would stay at 1.75 percent. The market reacted in the credit crunch that the Dow Jones in sliding off 13000 after China stocks cut 3% to apply in its financial lookouts.

      There is a crack in the dollar at 76 to 79 the jump in Dow Jones by 20% after the 9600. Swiss banks are forced to purchase its bonds because their overloads of Euros currency that included debts and credits, some said of CDS tradeoff. I do not blame them if I saw yahoo cut 2000 employments, Best buy closed 1500 stores, Sears closed 150 stores that many may see as correction to globalization, but certainly not a recommended formula for employment. In addition, the Brazil is not bending on the inflow of US to more acquisition and merger, and BRICS is raising its criticism on the equitable currency exchange under the throw weight system of IMF. It is plainly disadvantage to their floating rate currency and high inflation with higher interest rate; when EU and FED margin its free flow of credits at 1-1.75% at high 1.3 to a dollar. It is questionable on free trade issue and equitable trade principle.

      In the last days on the Greek debts interest rate jumped and Spain’s debt came short in sale. More and more investors are questioning on the downturn on the Stock markets that I believe the credit crunch resurface in the EU banks which suffered from the contraction of the China’s growth at 7.5% from 9%, and overshadowed by its trade deficit from January; in addition, the currencies exchanges rates are shifting their compatibilities after the effects of protectionism and inflation roaming.

      Consequently, dumping of Euros is inevitable even if those debts are traded. However, the extended additional debts make the system worse than before the Bael II with lesser growth.

      Some would question if EU and US could have their 54% votes to the World Bank in choosing its chief; and US President Barack Obama’s nomination of Jim Yong Kim for the presidency of the World Bank has been well received if he intended to keep the World Bank at bay as the welfare system for the poor and desperate. But, the emerging market nations are supporting more of the World Bank, they are eager to gain controls of the financial reforms through the World Bank and the Development Banks; if only the developed nations can stop continuing aiding the poor with lesser tools to revive. Then, the future financial reforms must depend on the EU nations’ vote to overturn the coming depression with an open mind that Okonjo-Iweala brings an insider’s knowledge of the institution of strategy and execution.

      BRICS demanded the recalculation of the current currency exchange rate, and ASEAN have already developing its own mutual agreement in its 13 currencies to a standardize exchange. Somehow, IMF should find it way to correct its system to compensate when imbalance occurs as fixed rate and floating rate meets. How does its system compensate when 1.75% and 7% interest rate is being exchanged? Otherwise, the wall of protectionism is not going away.

      I see more of significant equitable value changes in US and EU even in Germany after more inflation hit and lesser growth in a downward trend after June if the assumed haircut is not reversing the debt and GDP. What else can the developing nations do if their accomplishment is not apt to those are floating with a weight fixed to their central banks? It may not be contagion but sinking to the bottom in depression to a new start is not other countries have in their mind.

      Mr. Mohamed A. El-Erian gave the best descriptions on Europe’s decision last week to bolster its internal financial firewalls, these steps are, the recent tranquility has been more borrowed than earned.

      May the Buddha bless you?

    2. CommentedKir Komrik

      Thank you for the great article.

      USG should do two things in tandem:
      1.) do whatever it can to retain as much control as it can over the World Bank (and thus continue to control the WB Presidency)
      2.) use its overwhelming global influence to promote global constitutionalism; specifically, General Federalism which you can read about at kirkomrik.wordpress.com

      - kk

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