For the World Bank, it's time to take risks

World Bank President Jim Yong Kim talks about extreme poverty as "the defining moral issue of our time." The development bank's new strategy would realign the global institution to help end poverty by 2030. Photo by: Simone D. McCourtie / World Bank / CC BY-NC-ND

Things are getting risky at the World Bank. While details on the “smart risks” the bank wants to take to fight extreme poverty have been sparse, ideas are starting to emerge on a centerpiece of President Jim Yong Kim’s ambitious reform agenda.

In the future, country partnership frameworks are expected to include components on uncertainty and risk, and the bank will make it a point to support projects that help manage risks on a smaller scale, from natural disasters to household economics. Partner countries will be encouraged to set up national risk boards to help manage risk from a variety of sources, and at the bank, staff will be encouraged to be less risk-averse.

Those plans were discussed on Friday in Washington at an event on the 2014 World Development Report, released today, and they will likely be a focus of annual meetings that take place at the World Bank and IMF this week.

“We argue in the report that there is the need to shift from being crisis fighters to proactive and systematic risk managers,” said Norman Loayza, the director of the report.

The report also argues for mainstreaming risk management into development programs, at the strategic as well as programmatic levels.

“You will see that, in the programs at the bank, there will be a stronger emphasis on the link between results and risk,” said Loayza. “That is, they will not be addressing risk in isolation, but you will see how people at the bank consider those risks in connection with the potential results.”

The bank will include components on uncertainty and risk in new country partnership frameworks which outline its relationship with individual countries, an big departure from how such agreements were framed in the past, said Loayza.

It will also support projects that support risk management at the community and household levels, said Kaushik Basu, the bank’s chief economist, citing the World Bank project to create tsunami evacuation routes in Samoa as an example of that type of programmatic support.

The report calls risk both a burden and an opportunity, arguing that protecting the vulnerable from certain risks allows them to take the types of ordinary risks that can lift them from poverty, and applies that principle at the national and global levels as well.

On the national level, the report makes a number of specific policy recommendations including the foundation of “national risk boards,” either as stand-alone entities or from existing country institutions which would address and manage a broad array of risks in a proactive and systematic way.

“If you don’t take the smart and the necessary risks, then you, your country, your institution will remain stagnant, and that leads to possibly the worst choice, the choice of inaction,” said Loayza.

Such recommendations may be easier to preach than to practice at the World Bank, an institution that has faced complaints about its culture of risk aversion. World Bank President Kim has made risk taking an important part of his rhetoric and, on paper at least, of his reform agenda. The idea of facing risks head on is integral to new strategy documents that are currently under review by the bank’s board of governors, also known as the Development Committee.

Those documents outline the strategies the bank will follow to reposition itself to achieve its updated goals of eliminating extreme poverty and promoting shared prosperity, and include a number of specific policies, including a focus on fragile and conflict-affected states and bold projects that aim for “transformational development” which entail significant risks.

“We will take risks — smart risks,” said Kim in a speech last week. “And by that, I mean we will invest in projects that can help transform the development of a country or a region — even if it means we might fail.”

Perhaps just as importantly, though, the internal culture of the bank will have to change as well, say bank insiders, where toeing the line is often rewarded and there is little incentive to take personal risk to make change.

Loayza called the release of the report on risk at the same time as the bank is reforming its strategy a “happy coincidence” and “transitional,” noting that the idea for the report came from the last administration but is being embraced by the Kim administration.

“There are many things that can be learned by the institution about conducting its support to countries in a context of uncertainty, where risk is a priority,” he said.

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About the author

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    Paul Stephens

    Paul Stephens is a Devex staff writer based in Washington, D.C. His coverage focuses on Latin America and World Bank affairs, as well as Washington's global development scene. As a multimedia journalist, editor and producer, Paul has contributed to the Los Angeles Times, Washington Monthly, CBS Evening News, GlobalPost and the United Nations magazine, among other outlets. He's won a grant from the Pulitzer Center on Crisis Reporting for a 5-month, in-depth reporting project in Yemen after two stints in Georgia - one as a Peace Corps volunteer and another as a communications coordinator for the U.S. Agency for International Development.