WASHINGTON — While President Jim Yong Kim makes his final pitch for a capital increase ahead of Saturday’s meeting with the World Bank’s development committee, the institution’s staff, clients, and partners are quietly wondering what the outcome of the bank shareholders’ decision might mean for them.
Kim has repeatedly argued that the International Bank for Reconstruction and Development needs more capital to meet its lending demand, and to meaningfully engage in the areas where the bank’s owners have asked it to engage. In the hallways of the annual meetings this week, some staff members have voiced concern that a failure to secure more money from shareholders — an outcome made likelier by a skeptical U.S. government — could mean job cuts in the future. Others suggest the stakes are considerably lower, and that the bank should not forfeit too much in its quest to win U.S. support.
During a press conference Thursday, Kim told reporters he is “extremely optimistic” the bank’s shareholders are coming around to the idea of a capital increase for the IBRD. More capital would enable the bank to meet demand for its services from low-income and middle-income countries, Kim said, adding that demand has “exploded” in recent years. Shareholders have also been telling the bank to do more, he said, which means the institution needs more funding.
“I think that once shareholders see how much they're asking us to do and then look at the capital we have to actually get that done, I think eventually we'll get to a capital increase,” he said.
Even the United States, the bank’s largest shareholder, is at least willing to discuss the possibility, despite their earlier reluctance, Kim said.
“The good news is the US is now very much part of the discussion,” he said, adding, “a new Administration takes time to get organized.”
Read more about the World Bank Annual Meetings:
Otaviano Canuto, an executive director at the bank, was also optimistic, saying that there have been clear signals from the U.S. that it is now ready to discuss a possible capital increase and that, “this might favorably indicate that it was just a postponement and that agreement can be reached some time next year,” he added.
That kind of indication that the door is still open, as well as a timeline for a decision to be made would likely come as a win for Kim at these annual meetings — and is more likely than a definitive ‘yes’ or ‘no’ on the capital increase question this weekend.
The major sticking point for the U.S. — and Kim suggested Thursday that other countries share similar concerns — is the issue of World Bank lending to large middle-income countries like China and the other so-called BRICS.
The U.S. is calling for such countries to be graduated out of eligibility for IBRD loans, while board members representing the BRICS would surely push back against a capital increase deal that curtailed their access to World Bank credit.
Questions of eligibility and graduation are ultimately up to the World Bank’s shareholders to decide, Kim said Thursday.
“The shareholders together make the decisions about who qualifies, who doesn't qualify. We will provide all the information they need. And we look forward to a very good discussion on Saturday at the Development Committee and then we hope to move to some sort of decision in six months,” he said.
A U.S. Treasury official told Reuters this week that the U.S. believes the bank needs to examine its lending to “countries and to projects that already have ample borrowing capacity.” Some see that position as evidence the Trump administration is using the World Bank as a sort of battleground in its economic fight with China.
But Kim — and a number of World Bank experts — point to several reasons why it makes sense for the bank to continue lending to China and other large economies, even if those countries could find access to other sources of capital.
“Not only are we helping them along the development path, but the lessons we learn in China ... are very helpful to other middle income countries,” Kim said Thursday.
Canuto, who was formerly state secretary for international affairs for Brazil, said the bank’s ability to work in both low and middle income countries across a range of geographies and sectors, was one of its “unique assets” and set it apart from other multilateral and regional development banks.
He compared the bank to a “hummingbird” with an ability to “cross-pollinate knowledge” between countries through “learning by operating” in middle-income countries and then transferring those lessons to other developing countries. As a vice president at the bank, Canuto recalled arranging exchange visits between the governments of Chile and Mongolia around how to manage the macroeconomic implications of their copper reserves.
The bank also benefits from lending to middle income countries by balancing the risk in its portfolio, Canuto said, warning the bank against taking an “extreme position” in which it only works in low income countries and sacrifices its “financial breadth.”
Middle-income countries are home to 73 percent of the world’s poor people, leaving the bank’s poverty reduction targets out of reach without engagement in the places where poverty actually exists. The bank is also increasingly asked to tackle issues that are global in nature — like climate change, international refugee support, and pandemic security.
“If you’re going to prioritize those issues … that are global in nature, you can’t ring-fence the issue to a low income country,” said Scott Morris, senior fellow at the Center for Global Development.
Front and center
Whether the World Bank should receive a capital increase for IBRD — and how the bank might have to rebalance its positions to convince its biggest shareholders to grant that — is one small piece of a much larger conversation about development capital and the multilateral development banking system.
“Right now much of the discussion around capital is really consumed by this capital increase — that’s both an opportunity and a challenge to make sure that we are taking advantage of this moment to push on other reforms,” said Sara Aviel, former U.S. executive director to the World Bank, speaking at the Center for Strategic and International Studies.
Circling those potential reforms is a broad debate about how countries allocate resources between the variety of multilateral and regional development banks that exist around the world — of which the World Bank is the largest. Whether the MDBs could achieve greater development impact if their shareholders managed them more as a system than as individual institutions in competition with each other is a question that has filtered throughout these meetings.
Nancy Birdsall, president emeritus at the Center for Global Development, cited CGD projections that by 2030, 86 percent of countries eligible for the World Bank’s fund for the poorest countries — the International Development Association — will be located in sub-Saharan Africa. If that happens, Birdsall said, then IDA will become a de-facto “African Development Bank based in Washington.”
Birdsall suggested that the MDBs’ shareholders should consider what it will mean over time to see a regional development bank — the AfDB — relatively marginalized by an increasing concentration of World Bank funding in the region where that regional bank operates.
“Is that the right way to look at the MDBs as a system? Let’s think that through,” Birdsall said.
Devex reporters Michael Igoe and Sophie Edwards will be on the ground at the World Bank annual meetings. Sign up for our daily morning briefings and follow us on Facebook and Twitter for everything you need to know from the annual meetings.