WASHINGTON — Lawrence Summers, the World Bank’s former chief economist, slammed an initiative launched in 2016 that aimed to create an insurance market for pandemics, calling the facility “an embarrassing mistake” and a symptom of “financial goofiness” within the institution.
The Pandemic Emergency Financing Facility was supposed to provide insurance coverage for the world’s poorest countries against potential disease outbreak. When these occurred, it was meant to deliver quicker payouts to countries and international responders, instead of waiting for international donors to act. Summers said that has not happened — apparently alluding to the Ebola outbreak in the Democratic Republic of the Congo, where, as of late February, the pandemic bonds that support the facility had not paid out anything.
“The World Bank needs to be squarely against financial goofiness in support of a worthy cause, and there’s a ton of that going around,” Summers said.
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He was generous in assigning blame for the “bad design” of the facility, singling out the “goofy governments who wanted to have an initiative for the G-7,” “World Bank officials who didn’t understand the first thing about finance but ... loved the word ‘private sector involvement,’” and “bureaucrats at the bank who were looking to make their careers by having had a major innovation,” among others.
“It ought to be studied, and there ought to be careful and rigorous reflection when people call for innovative finance involving the private sector,” Summers said, adding that the World Bank needs to get much better at knowing the difference between useful innovative finance and poorly designed schemes, suggesting that the pandemic facility was not the only current example of the latter.
Summers leveled his criticism during an event at the Center for Global Development in Washington, D.C., where five former senior World Bank officials shared their views on what President David Malpass, who took office on Tuesday, should prioritize during his term.
While the former member of the Clinton and Obama administrations offered the sharpest feedback, others were also blunt in their assessments of the bank’s recent history.
“Don’t do a reorganization,” advised Minouche Shafik, director of the London School of Economics. “You will lose huge amounts of time, goodwill, and fiddling with the organogram will achieve nothing.”
Unlike his predecessor Jim Kim, Malpass has so far shown little appetite for introducing a major structural reform. Kristalina Georgieva, in one of her final acts as interim president, announced a senior level shake-up late last week, which has been seen as a rollback of changes Kim made early in his tenure.
Shafik had another suggestion for how to set a positive tone early on — and avoid alienating staff.
“Don’t behave like an outsider and badmouth the organization internally and externally for the first year. You own it,” she said.
A few of the panelists advised that while a major reform effort is not a good idea, Malpass should consider taking a look at the World Bank’s operating budget, if for no other reason than to make it more understandable.
“None of the words are like regular English-language words,” Afsaneh Beschloss, founder and CEO of the RockCreek Group, said of the World Bank budget. “Everything we’re talking about has to be measured, and you can’t measure if you don’t know how much you’re spending and what you’re doing with it.”
Summers went a step further: “I think it is morally incumbent on an institution that spends $2.5 or $3 billion a year administering itself as it provides lending assistance to engage in some serious analytics and metrics around its budget per dollar delivered, budget per bit of expertise delivered, and to explore whether it is fundamentally sized correctly — and I am not persuaded that it is,” he said.
Before Malpass can do anything else though, Summers said, he must offer reassurance that he has not brought the Trump administration’s political agenda with him to the World Bank.
“He has the most hard-edged biography of any past World Bank president by far, and he was put there by the most anti-international, anti-liberal order U.S. administration since the second World War,” Summers said.
“Before he can do anything else, he has to reassure everybody that he’s not going to be a thug in support of all of that. And until he’s done that, there’s no progress on anything else.”