15
Oct
He is unlikely to get his way soon. The US Congress in particular is no fan of doling out cash to multilateral agencies. Yet even in a more conducive political environment, it is hard to see that increasing the bank’s capacity without reforming its fundamental model will make much difference in tackling the most pressing problems in the developing countries it is meant to serve.
Despite multiple reorganisations, the bank is an institution in search of a unique selling proposition. Its traditional role was to lend (and give grants) to individual countries, for infrastructure projects and more recently to support structural reform. But the expansion of large-scale private capital markets has usurped this function. The bank increased its lending during the financial crisis as private markets seized up, but has since scaled back.
More recently, its role has been supplanted by the proliferation of nimbler regional development banks such as the African Development Bank and the Andean Development Corporation, some of which have weaker social and environmental safeguards constraining their activities. Most recently, the World Bank’s declining relative influence was underlined by the creation of the Asian Infrastructure Investment Bank, which will recycle some of China’s vast foreign exchange reserves to its neighbours.
Increasing the bank’s capital base will not reverse this decline. The scale of the developing world’s infrastructure needs will ensure the bank remains a small player. Nor is the bank likely to be given more money because of Mr Kim’s contention that more aid is needed to help countries hit the new UN “sustainable development goals”. Those targets are a mess, comprising 17 objectives divided into 169 subcategories, many hopelessly vague. In any case, it is past time to abandon the mechanistic idea that aid can be fed into the system and a predictable development gain emerge.
There are plenty of gaps to be plugged in the collective global effort to make the human race richer, healthier and safer. Research into new strains of crops, cures for diseases in poor countries and new technologies to slow or mitigate climate change are undersupplied by the patchwork of government, charitable and private sector effort.
Unfortunately, the holes in development finance and expertise do not match the shape of the bank’s existing tools. Despite some effort, an institution set up to lend to individual countries has struggled to broaden its operations. Few countries want to borrow to finance activities with uncertain returns such as agricultural productivity research. Budget cuts have constrained the bank’s ability to make grants to non-country specific projects, and the standalone trust funds the bank runs are also too small to make much of a difference.
These problems are as much the fault of the bank’s shareholders as its managers. Middle-income countries do not want to give up a source of cheap lending to see the money diverted to general good causes. They are misguided.
The bank’s policy experience makes it a natural source of ideas for growth and development, but its expertise is being underused. Its management and shareholders must find more creative ways of using its money to further its contribution. Ramping up one more source of infrastructure finance for emerging markets is a lesser priority than solving the developing world’s longer-term problems. The bank needs more money less than it needs a new mission.
Source: http://www.ft.com/cms/s/0/1b1e8e68-719a-11e5-9b9e-690fdae72044.html#ixzz3odzdltyT