NUSA DUA, Indonesia — The International Monetary Fund and World Bank Annual Meetings are now underway in Bali, against a backdrop of stark climate change warnings, economic uncertainty, and geopolitical rivalry.
The World Bank Group faces the difficult task of positioning itself at the forefront of the world’s most urgent challenges, while also navigating politically charged issues that could divide its largest shareholders. The bank’s leadership, fresh off a successful effort to secure a general capital increase for the bank in spring, will now look to clarify how the institution can use its financial levers to drive that capital toward investments in human development and away from carbon-intensive infrastructure.
As it undergoes the massive logistical effort of hosting these meetings, the Indonesian government is facing questions about its response to the earthquake and tsunami that devastated the city of Palu in late September. Candidates opposing President Joko Widodo have already seized on the discordant image of a faltering disaster response effort amid the expensive global gathering.
Trouble in the global economy will be another issue shaping the meetings, a decade after the 2008 global financial crisis. IMF warned earlier this year that the global economy is now more indebted than before the crisis hit, with debt levels in low-income countries rising 13 percentage points of gross domestic product in the past five years. In its April fiscal monitor report, the institution said 40 percent of low-income countries are in, or at high risk of, debt distress.
The Trump administration is pushing for G-20 leaders to agree that development finance should be transparent, accountable, and sustainable, Devex has learned.
The United States, the bank’s largest shareholder, has seized on the debt burden facing developing countries to point the finger at one of its greatest economic rivals, China. Through its unbridled lending, China has lured developing countries into unsustainable financing arrangements, the administration of President Donald Trump alleges.
As the meetings kick off, here are three big topics Devex will be tracking throughout the week:
A big moment for human capital
The centerpiece of the meetings is the official release of the much-vaunted human capital index, which will for the first time rank 157 countries based on how well they are investing in their human capital, notably through health, social services, and education. Similar to the bank’s established “Doing Business” report, which assesses countries based on their support for private enterprise, the idea is to spur governments to invest more in human capital projects.
Devex spoke to Annette Dixon, vice president of human development at the World Bank, about the institution's forthcoming human capital index.
The index is likely to prove controversial, however, especially as major shareholder countries — namely the U.S. and China — could see themselves scoring lower than countries “they’ve always felt superior to,” World Bank President Jim Yong Kim said during this year’s spring meetings. While the human capital index has attracted high-level support, including endorsement from the United Kingdom’s development secretary Penny Mordaunt, the concept is not without its critics.
According to a background paper on its methodology published last month, the human capital index “combines indicators of health and education into a measure of expected productivity as a future worker of a child born today, expressed as a fraction of what would be possible if she enjoyed complete education and full health.” The methodology has raised some questions among economists, as has the fact it was published the day after The Lancet came out with an academic paper on measuring human capital.
A World Bank spokesperson told Devex the papers are not linked but that The Lancet report offered an “important contribution to the growing recognition of how critically important it is that countries invest in their people.”
The bank’s private sector arm — the International Finance Corporation — is positioning itself as a leader in climate finance and reported “unprecedented” results for its climate-related investments in its latest annual report.
Last year, 36 percent of IFC’s investment activity was climate-related, exceeding the target of 35 percent by 2030, agreed under the capital increase package put forward last October. The institution is taking steps to improve transparency and recently became the first multilateral development bank to disclose its climate-related financial risk, as recommended by Michael Bloomberg’s Task Force on Climate-related Financial Disclosures. It has also started including carbon pricing for all investments in the energy-heavy cement, chemicals, and thermal power sectors.
Another major development, which IFC’s CEO Philippe Le Houérou announced exclusively to Devex on Monday, is the institution’s “bold” new approach to working with intermediary banks that have exposure to coal projects.
IFC CEO Philippe Le Houérou lays out a bold new policy that changes the way the institution lends to banks associated with coal projects — under the condition that they agree to reduce those investments.
The World Bank Group bans new direct funding to coal plants except in rare circumstances, but the policy does not extend to the bank’s indirect lending, which civil society groups have said can end up supporting fossil fuel projects. In response, IFC has now said that instead of phasing out its support for financial intermediaries with exposure to coal, it will purposely invest in those banks who want to move away from coal and “green” their portfolios.
A battle for ‘sustainable’ development finance
Two of the World Bank’s largest shareholders, the U.S. and China, increasingly view development finance as a geopolitical battleground where they can exert their influence in strategically important parts of the world.
Through the Asian Infrastructure Investment Bank and the Belt and Road initiative, China has sought to extend its soft power throughout the Indo-Pacific region and beyond. Some of the financings the country has provided is raising concerns. Pakistan, heavily indebted to China, is currently seeking an IMF bailout; Sri Lanka recently surrendered a port to China after failing to pay back its loans; and Malaysia’s new prime minister plans to cancel Chinese-financed projects agreed to by his predecessor.
Meanwhile, the U.S. is on the verge of launching a new development finance initiative, which it hopes to couple with a G-20 endorsement of “sustainable” development financing principles that would represent a rebuke to China’s prolific spending.
The World Bank has walked a fine line between welcoming collaboration with China’s growing financial institutions and initiatives, while avoiding alienating its largest shareholder, the U.S. If tensions between the Trump administration and China continue to escalate, that equal opportunity position could prove harder to manage. Saturday’s session on the economics of China’s Belt and Road initiative promises to keep the conference venues filled into the weekend.