In 1944, 730 delegates from 44 countries met in Bretton Woods, New Hampshire, to shape the institutions that would rebuild a war-torn world. Seven decades later, some of the highest ranking officials who have served in those institutions say it’s time to meet again.
The multilateral development banking system is due for a major overhaul, according to a high-level panel assembled by the Center for Global Development. Institutions including the World Bank and regional MDBs need to recalibrate their missions, rethink their values, and work better as a collective system if they are to stay relevant, participants in the project concluded. The World Bank, the expert panel said, should establish “global public goods,” beneficial resources such as clean air or a stable climate, which can only be managed through cooperation.
The panel arrived at five main recommendations:
1. The World Bank’s main priority should be the promotion of global public goods that are critical to development;
2. MDBs should set a more ambitious target — $200 billion — for financing sustainable infrastructure;
3. The banks should maintain current levels of concessional financing — even as countries technically graduate from eligibility;
4. The World Bank should coordinate with United Nations agencies and others to use concessional finance in crisis response;
5. MDB shareholders should agree to convene every five years to play a more direct, constructive role in the institutions they fund.
Reforming the entire multilateral development banking system is a tall order, to say the least. Anything close to the overhaul described in the panel’s report would require much deeper strategic involvement from ministers and heads of states than what the MDB system currently garners. With a growing thread of skepticism threatening multilateral institutions, there is little reason to believe states will make this kind of effort a priority anytime soon. Those institutions that have undergone internal change on a smaller scale have already shown how difficult that can be.
This strategic shift would go well beyond ongoing and already highly contentious reforms at the World Bank under President Jim Yong Kim, for example, members of the panel said.
“The [World Bank’s] reforms have been largely directed at internal structure for effectiveness, not at redefinition of mission, and our focus is on redefinition of mission,” former World Bank chief economist Larry Summers, one of the project chairs, told Devex.
Voices for change
The panel launched its recommendations just blocks from where the World Bank and International Monetary Fund’s annual meetings were buzzing away.
Experts including former World Bank executives such as Summers and former ministers of finance including Chile’s Andres Velasco and Nigeria’s Ngozi Okonjo-Iweala, called for the shareholders to take on a more active role — a possible lever for reform.
“We think that corporate governance at the legacy development banks is lacking, and it needs a massive shake-up,” said Velasco. “This can only come from shareholders, and that’s why we’re calling for these reviews every five years,” he said.
Members of the panel called for greater specialization between global institutions such as the World Bank and regional development banks such as the Inter-American Development Bank or African Development Bank. While the former should focus on global priorities, they said, regional bodies might be better placed to deal with pandemics, infrastructure investments, and politically sensitive reforms that countries don’t want associated with “Western” institutions.
The MDBs “suffer from a lack of focus. We insist that there should be specialization — different institutions can do different things,” said Velasco who, along with Summers and Indian economist Montek Singh Ahluwalia, chaired the project.
Some of the CGD recommendations echo what MDB leaders have been saying already. On the same day the panel released its recommendations, Kim delivered his plenary speech at the World Bank’s annual meetings, calling for a “much expanded role for the World Bank Group in the Global Public Goods agenda.”
During his term, he has focused specifically on climate change mitigation, refugee services, and pandemic preparedness and response.
The bank has emerged as a financier for refugee host countries like Jordan and Lebanon. The bank created a facility to make concessional finance available to refugee-hosting middle income countries, in recognition of their contribution and the cost it imparts.
Kim has also overseen the creation of a Pandemic Emergency Facility, which he says could have helped channel $100 million dollars to Ebola-affected countries had it been in place when that outbreak struck West Africa. “With your support, we will explore how innovative financing instruments such as the PEF can be used for mitigating other kinds of risks that will provide the poor much needed access to insurance and other kinds of safety nets,” Kim told the bank’s shareholders in his speech.
More than just peripheral change
But panel members charged that reform must go much further than the institutional periphery, changing the core mandate.
“We’re saying global public goods have to be the main purview of the World Bank. We’re saying they have to be financed differently,” Velasco told Devex.
He cited the example of trust funds, of which the World Bank currently administers over 3,000. These funds get money from one or more donors for a wide range of projects and activities, at the national, regional, or global scale. But because they are so wide-ranging and varied, this growing portfolio of funding channels contributes to an “ad hoc” treatment of global issues, said CGD President Nancy Birdsall.
“You can’t simply have a bunch of trust funds or budgetary set asides. [Global public goods] has to be the main job of the World Bank. I think the stress is very different from what has been the conventional wisdom in Washington at the World Bank.” Velasco added.
The current approach also leaves institutions such as the World Bank vulnerable to the shifting sands of global development buzzwords, said Velasco.
“The MDBs, particularly the World Bank, have been prisoners of changing fads,” he said. “Every three years there’s a new development fad. They have to embrace it, otherwise they seem out of date. That’s yet another layer of checks and balances and requirements and forms that have to be filled. In the end that’s not very productive.”
The case for continuity
Not everyone on the CGD panel endorsed its conclusions. Ray Offenheiser, president of Oxfam America, included a note of dissent in the panel’s final report, in which he argued that the global public goods agenda should not take precedence over the World Bank’s current mission to end extreme poverty.
Offenheiser also questioned the wisdom of the “divide and conquer” approach many of his collaborators suggested to clarify the mandates of international versus regional MDBs. “We … have to recognize how challenging it is to change institutions, their cultures, their staffing, and the expectations that their development partners have of them,” he wrote.
Kim, who spent much of his first five years in office shepherding the bank through a tumultuous reorganization, can relate to that.
Kim’s reappointment to a second term last month met fierce criticism. World Bank staff complain about his management of the internal reform process. Others complain that the unanimous — and uncontested — reappointment process was a slap in the face to the bank’s 2011 commitment to an “open,” “merit-based” selection.
CGD panelists echoed the latter criticism Friday — though they also commented that the focus on who leads the bank has overshadowed a more important conversation about where they should be leading it.
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.