- The U.S. choice to lead the World Bank has a history of criticising it
- Efforts to curtail China’s influence through the bank may end up strengthening it
- Malpass is likely to be confirmed, but the trend points away from the U.S.
Stockholm (Ekonamik) – Following the abrupt resignation last month of former World Bank president Jim Yong Kim three years before his the end of his term, nominations opened last week for the post, with a selection expected by mid-April.
Nominees so far include U.S. Treasury Undersecretary for Foreign Affairs David Malpass, Nigerian World Bank development economist Ngozi Okonjo-Iweala, Rwandan former African Development Bank president Donald Kaberuka, and Indonesian finance minister Sri Mulyani Indrawati.
The nomination of David Malpass has met with resistance from some members of the 189-country institution. Malpass, a former chief economist with Bear Stearns and negotiator on the current U.S.-China trade talks, is an outspoken critic of the World Bank, among other things for its size and influence and for its billions of dollars in loans to China.
“Globalism and multilateralism have gone substantially too far, to the point that they are hurting U.S. and global growth,” Malpass told a U.S. House of Representatives subcommittee in 2017.
U.S. officials accentuated his commitment to the bank’s core objectives of reducing global poverty, however, with the nominee himself underlining his commitment to helping to ensure, for example, the “full participation” of women in developing economies.
“I care deeply about the mission and about breaking out of poverty and achieving growth, and I am sure the World Bank can succeed,” Malpass told reporters.
Malpass would measure success by improvements in median income and a clearer path for countries to “graduate” from the institution’s lending programmes, officials said.
He would push for countries “to adopt best practices for achieving private-sector led growth, including competitive tax systems, stable currencies and enabling environments conducive to innovation and investment.”
The U.S. historically chooses the head of the World Bank, an institution that has existed since 1944 to alleviate extreme poverty in developing countries (with an informal agreement to let European governments choose the head of the IMF). Washington remains a major funder of the bank, but not the dominant one.
The nomination of Malpass, who is also a vocal critic of the IMF and the WTO, by an administration already seen to be flouting the post-WWII international order and deliberately undermining multilateral institutions, however, has stoked further anxiety about the administration’s intentions.
Criticisms range from perceptions of Malpass’s lack of interest in the bank’s mission to his associations with U.S. president Donald Trump and broader background.
“Malpass has never distinguished himself with an interest in the mission of the World Bank,” said Tony Fratto, a former White House and Treasury Department spokesman under George W. Bush. “It’s an odd career-capping type of appointment for someone with very little demonstrated interest in these topics. It’s hard to see how he can be deemed qualified for the job.”
“David Malpass is a Trump loyalist who has committed economic malpractice on a wide range of topics, from dismissing the first signs of the 2008 global financial crisis to flirting with the abolition of the IMF,” according to the even harsher assessment from Justin Sanderfur, a senior fellow at the Center for Global Development, a non-profit think tank.
The World Bank funds projects at lower rates than if financing were procured from international markets, with financing, investments and guarantees amounting to US$67 billion for its 2018 fiscal year alone, according to its annual report.
The expectation is that Malpass would seek to reduce lending to middle-income countries like China and India, which he says enjoy ready access to private capital markets.
This could accentuate the confrontation with China, which he believes also benefits geopolitically from its World Bank loans as it goes about building its $1 trillion Belt and Road Initiative (BRI) an infrastructure programme aiming to build transcontinental connectivity and regional cooperation. The World Bank is actively working on the initiative in order to boost financial transparency and improve the quality of the projects underwritten by Beijing.
But Malpass has a point. The BRI is just one aspect of China’s efforts to overhaul current international architecture, according to Eurasia Institute’s Ian Bremmer, alongside the establishment of China’s Asian Infrastructure Investment Bank (AIIB), a direct competitor to both the World Bank and the IMF, and its investment in development through the China Development Bank.
“More broadly,” Bremmer says, “Beijing continues to use financial diplomacy to win allies for itself around the world, and without the stringent concessions that typically accompany World Bank financing and loans… all while being one of the World Bank’s biggest borrowers.”
Nevertheless, Malpass helped forge an agreement brokered by U.S. Treasury Secretary Steve Mnuchin last April to increase the World Bank’s lending capacity by $13 billion, in a package which also increased China’s shareholding – reforms that he would oversee as the bank’s president and which, some suggest, point towards a shift in attitude towards multilateral institutions despite the administration’s “America First” rhetoric at home.
The challenge for Malpass will be to strike a balance between using the bank’s instruments where China’s initiatives legitimately further the objective of reducing poverty, while refraining from using the bank directly to contain China’s economic rise. He has also warned that China’s lending practices in Africa, Asia and Latin America can lead countries into a debt trap.
Conversely, his pledge to make the bank more efficient, transparent and focused on developing countries without the same access to capital markets could paradoxically create more space for Beijing to flex its financial and geopolitical muscle. If the institution lends to fewer countries, these may turn to China for financing instead.
Malpass is likely to be confirmed by the bank’s voting shareholders, despite expected pushback from Europe and China, if only because he is probably a somewhat less controversial choice than immediately assumed.
So far, there is also little appetite from foreign countries or the bank’s board to contest the nomination, grumbling notwithstanding. The Chinese, Europeans and Japanese are all engaged in trade negotiations with the United States and are likely to want to avoid provoking a backlash from Trump.
But developing nations are already demanding a greater say in running international financial institutions, and Mr Malpass is not a development expert, nor does he have deep relationships with lower-income countries where the bank does most of its work.
If Malpass has a controversial or unsuccessful stint at the World Bank, the likelihood that his successor is not an American will increase further.
Images: Wikimedia Commons