Is America's hold on the World Bank at an end?

Multilateral finance for global development and poverty reduction is in the midst of unprecedented change, and the World Bank is seeking ways to respond.

The emergence of the new China-led Asian Infrastructure Investment Bank and the New Development Bank led by Brazil, Russia, India, China and South Africa signal the growth of a new development landscape removed from the Western-led Bretton Woods model. Emerging and developing countries are asserting themselves as stronger actors for finance and economic growth.

Despite the rise of new actors, the United States has so far maintained its hold on World Bank leadership. With nearly 16 percent of shares, the U.S. is the bank’s largest shareholder and the president of the United States has picked the head of the institution since its founding.

Now, the World Bank is at the tail end of a controversial and extensive reorganization spurred on by its 12th consecutive American president, Jim Yong Kim, and senior management at the global financial institution is scrambling to respond after the latest staff engagement survey revealed stark discontent with bank leadership.

Staff has accused Kim of communicating too little and even fostering a culture of retaliation and top-down control. With two years left on his contract, bank insiders and outsiders alike say quick action will be required to restore his reputation within bank walls, and some think it’s already too late.

A Jim Kim presidency stooped in controversy combined with the rise of other multilateral institutions has caused many inside and outside the bank to take another look at the presidential selection process. And many wonder whether in 2017 a non-American will take the reins of the institution for the first time.

A new era for multilateral finance?

Since the advent of the Bretton Woods institutions, Americans and Europeans have adhered to an informal agreement that maintains their respective influence in the multilateral system. Americans historically support a European to lead the International Monetary Fund while the Europeans back an American to lead the World Bank. Since American financier Eugene Meyer was named the first president of the World Bank in 1946, an American has been at the helm of the institution. And the IMF too has experienced a dynasty of European heads.

But this informal agreement — forged in the aftermath of World War II — could be weakening.

The rise of the New Development Bank and the China-led AIIB is beginning to make clear for both the Europeans and the Americans that they have to do more to ensure that the emerging economies are their allies as well, Scott Morris, senior associate at the Center for Global Development, told Devex.

And that could mean the beginning of the end of the long-standing status quo.

2012: An unprecedented election

The World Bank presidential election has already seen the emergence of greater competition, and we might be poised to see even more. In 2012, for the first time in history, two non-American candidates were nominated to run against the U.S. president’s nominee.

Ngozi Okonjo-Iweala from Nigeria and José Antonio Ocampo from Colombia contended for the position and managed to obtain the backing of a significant number of shareholding countries. Prominent development economist and director of Columbia University’s Earth Institute Jeffrey Sachs made history by nominating himself for the role in an op-ed in The Washington Post. Sachs garnered a small following of country supporters, including Jordan, Kenya, Malaysia and Bhutan.

Ocampo eventually pulled out of the race, as did Sachs who backed U.S. President Barack Obama’s nominee Jim Yong Kim. But even in the final stage of the elections it appeared unclear — at least publicly — whether Okonjo-Iweala or Kim would win the majority of votes from the board of directors.

In the end, Kim’s victory prompted criticism that the result was just another predetermined political arrangement between the United States and its European allies. The wheeling and dealing among the voting powers in the board is opaque, critics allege, and the final voting results aren’t disclosed. Still, the fact that there were non-American challengers at all during a seemingly contested election made 2012 a healthy milestone for the World Bank, according to Morris.

“I think it is important to view the process around Jim Kim’s election as really a turning point for the institution,” Morris said.

As deputy assistant secretary for development finance at the U.S. Treasury Department during the 2012 elections, Morris’ job was to help ensure Kim won the election. While he succeeded in that regard, Morris said the final result was never a certainty and that for the first time in history the American candidate had to do “very significant outreach and campaigning as any candidate for a political office would.”

“In future rounds,” Morris said, “we may in fact see a different outcome.”

What will 2017 look like?

The next round of elections for the World Bank presidency is less than two years away, and this time around, we could see an even greater number of candidates vying for the job in an even more heated election, according to Raj Kumar, president and editor-in-chief of Devex.

“I would predict that now that the seal has been broken from the 2012 campaign, that 2017 is going to be even more contested — more candidates, more of a public campaign,” Kumar said.

Morris too stressed that more candidates could come into the picture.

“I find it hard to believe that the process could revert back to one where no other countries felt they should put a candidate forward,” Morris said.

The 2012 election, despite its outcome, broke the mold — changing at least some assumptions that the American White House will continue to pick the president of the World Bank. And as Kumar pointed out, Sachs’ self-nomination in The Washington Post — while far-fetched — also opened up the possibility for anyone to nominate themselves for the role.

It’s now entirely possible to have several credible candidates for the World Bank presidency, Kumar said. But simply having more candidates in 2017 doesn’t satisfy critics who want to see a completely new and nonpolitical process put in place.

Paul Cadario, senior fellow at the University of Toronto’s Munk School of Global Affairs and a former senior manager at the World Bank, said the board of directors should hire an executive search firm to comb the world for the best candidates — similar to the way a corporation, a nongovernmental organization or a university would search for their leader.

“Many organizations have found that that is a very satisfactory way of picking a CEO for an important job,” Cadario said.

But is it realistic for the World Bank? Not according to Morris.

The World Bank is a political institution, Morris said, and the selection of its president is laid out in its charter as a political process — one where a system of weighted shareholding is the deciding factor for who leads the bank.

“I think it’s important to actually embrace the political character of it,” Morris said. “And if the shareholders as a whole are increasingly dissatisfied with the outcomes they’ve seen to date — if they don’t like that it’s always been an American president — then the way they can change that is to create more competition.”

For Morris, employing an executive search firm would risk undermining the responsibility of World Bank shareholders to generate their own list of candidates. That process ensures potential presidents who rise to the top, do so with the support and backing of a country — or countries — behind them.

Ultimately, the best qualified candidate will emerge through “diplomacy” and “compromise,” according to Amy Studdart, deputy director and fellow of the William E. Simon chair in political economy at the Center for Strategic and International Studies.

“What development means in Norway or Sweden is very different [from] what development means in the U.S. … there isn’t a unified theory of development … and so you sort of have to have someone at the head of the [World Bank] who understands those differences and can navigate the politics around all of that,” Studdart said.”And frankly I think that means you need to have the weight of a country behind you.”

Consequences of a non-American at the helm?

It’s possible to imagine the U.S. president nominating a non-American for the role — an unprecedented act that would certainly signal America’s recognition of the changing multilateral world, but could be political suicide for a U.S. president just taking office. And in 2017, it will fall to the next administration to submit a nominee.

But if history is made in 2017 and a non-American is elected to lead the global financial institution, what would that mean for the relationship between the World Bank and its largest shareholder? For Kumar, a non-American president at the institution could provide a boost for U.S. engagement on foreign aid and multilateral affairs.

"Will a non-American as president of the World Bank have a different relationship with the U.S. government? Absolutely,” Kumar said. “The U.S. will still be the largest shareholder, but a World Bank president from another country can more strongly and publicly push the U.S. government — on its own aid programs for example.”

Many have criticized this U.S. Congress for its disengagement from World Bank affairs, and a non-American president at the head of the World Bank could have the objective credibility to pressure Congress in a way that an American cannot — or will not.

But as Tony Fratto, deputy assistant and deputy press secretary to President George W. Bush pointed out, the White House has in the past been active with the World Bank and its president. Fratto cited in particular the Clinton and Bush administrations and said that while the Obama administration has been regarded as being less engaged, it is not completely inactive.

From Fratto’s perspective, placing a non-American at the head of the World Bank could result in the White House taking a step back from the institution and multilateral affairs.

“If the [the World Bank] were not headed by an American, American interest in the institution would diminish considerably,” Fratto told Devex. “And for that to be the case with its largest shareholder would not be beneficial for the institution overall.”

Ultimately it will come down to the financial institution’s board of directors to decide if and how to change the process for selecting the World Bank president, and it will be up to them to decide if they are ready to break tradition by placing a non-American at the helm.

Read more international development news online, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you FREE every business day.