Incoming World Bank chief will get a honeymoon, but not for long

AS World Bank shareholders gather in Washington for their annual spring meeting that began on Monday (Apr 10), the global institution appears to be on the brink of significant change.

World leaders, led by French President Emmanuel Macron and Prime Minister Mia Mottley of Barbados, along with a constellation of academics and development experts, want the bank to do more to help poor countries grappling with climate change.

The bank has set out its own vision for transformation, in response to calls for action from the United States and others. Major shareholders have approved some initial reforms, including agreements to let the bank lend more money and attract more private investment.

At the centre of the discussions will be Ajay Banga, who is widely expected to be confirmed as president of the bank in the coming weeks.

When he takes over this summer, he will face high expectations and urgent questions about whether the bank will change its lending model, whether it will seek more money from shareholders and how he will direct the bank to address issues including poverty, global warming and the war in Ukraine.

“He’ll get a honeymoon, but he better use that honeymoon well,” said Mark Malloch-Brown, the president of the Open Societies Foundation and a former vice-president of the World Bank. “These institutions do not change quickly.”

A long-time finance executive, Banga, 63, became the CEO of Mastercard in 2010, shortly after the company – which had been owned by a coalition of more than 25,000 financial institutions – went public. During his 10 years at the helm, he built Mastercard into a powerhouse now worth US$350 billion.

“He fundamentally transformed what was a slow, bank-association culture into a high-performing, agile, innovative, proactive, now Fortune 20 company,” said Mike Froman, a Mastercard executive who is preparing to take over the Council on Foreign Relations. “That involved everything from leadership, motivation, vision, but also very importantly, changing culture.”

Critics of the bank complain that, in addition to being insufficiently focused on climate change, it is woefully slow to respond to major crises and lacks ambition and creativity.

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Banga said he intends to bring a new sense of urgency to the bank’s core mission of alleviating global poverty, while also taking on some of the biggest crises in the world today.

“Inequality is intertwined completely with challenges like climate change, challenges like fragility of the world with refugees and the like being caused by conflict, with challenges like the pandemic, with challenges like with Russia and Ukraine, with what that does to food and fertiliser,” he said in an interview. “I don’t think you can segregate these into buckets and hope that you can deal with one without dealing with the other.”

Banga will also be faced with a delicate diplomatic task when he assumes the job. Although he has been nominated by the Biden administration, he will have to navigate the tension between the US and China, and he will need to press all of the major shareholders to make sure that their investments in the bank match their stated ambitions.

At a congressional hearing last month, Treasury Secretary Janet Yellen, whose portfolio includes overseeing the US’ investment in the World Bank, made clear that she hopes the bank can help weaken China’s effort to exert influence in the developing world, which the US views as predatory.

She wants the World Bank to provide an alternative lending option that provides “quality infrastructure investment” that is “responsible”.

“I’m very concerned about some of the activities that China engages in globally, investing in countries in ways that leave them trapped in debt and don’t promote economic development,” she said. “We are working very hard to counter that influence in all of the international institutions that we participate in.”

Securing more funding for the World Bank that would allow it to increase its lending capacity could also be difficult. Yellen said that she thinks the World Bank can initially boost its capacity by stretching its existing resources and being more innovative.

However, the US is not currently calling for increasing the capital available to the bank. “We do want to see federal mobilisation of private resources alongside World Bank investments,” Yellen said. “But we’re not requesting a capital increase at this time.”

Scott Morris, a senior fellow at the Center for Global Development, said the debate over more funding for the World Bank will likely circle back to the question of China and the question of why the world’s second-largest economy continues to borrow from the bank.

He said China’s borrowing from the bank is likely to find more acceptance if it is for projects with global benefits, such as reducing emissions, rather than for traditional local projects. “I definitely think it’s still an area of tension,” Morris said.

Among the areas where Banga will be most closely scrutinised is how he uses the bank to confront climate change.

He will be in Washington this week but not have a formal role in the meetings, given he has not yet been confirmed. Substantial reforms are unlikely to be codified at the bank’s spring meetings.

“Civil society will say this has got to go a lot further, and that it’s still missing a level of ambition,” Malloch-Brown said. “People will be expecting a much bigger instalment by the time of the annual meetings in the fall.” NYTIMES