World Bank chief’s exit raises thorny issues

Robert Zoellick will depart in June as President of the World Bank, once again raising the thorny issue of leadership of the Bretton Woods twins (the Bank and the International Monetary Fund).

At their birth, John Maynard Keynes memorably warned that if these institutions did not get good leaders they would “fall into an eternal slumber, never to waken or be heard of again in the courts and markets of mankind.”

Getting a good leader, of course, requires a careful selection process. Today, however, the world is stuck with just the opposite: a dreadfully antiquated process whereby the United States and Europe, despite their economic travails, retain a monopoly on the leadership of the Bank and the IMF, respectively.

There is grudging agreement that this system should change. But the forces perpetuating the status quo – European and American resistance to change and emerging-market countries’ passivity – remain powerful, as the choice last year of Christine Lagarde to lead the IMF illustrated.

Election-year politics in the US will strengthen these forces further, with President Barack Obama’s administration unlikely to relinquish a symbol of global power, which would invite opponents’ charges of weak leadership.

But, in some ways, the easy part is to state the case for the obvious: the Bank requires a new selection process that will enable it to choose the most qualified person, regardless of nationality.

The more difficult part is to identify the qualifications needed to run the Bank at a time when its role must be adapted to far-reaching global changes.

For the first time in a long time, a significant number of poor countries are catching up with the advanced economies, and the list of development successes is lengthening.

That means that more of the poorest countries will therefore graduate out of the need for concessional lending from the Bank.

The Bank’s non-concessional lending agency, the International Bank for Reconstruction and Development (IBRD), may well retain its rationale, especially because three-fourths of the world’s poor now reside in middle-income countries. But easier access to private finance will force a re-evaluation of the IBRD’s methods and the magnitude of its lending.

For example, countries may want the Bank to continue to provide neutral advice and set standards on procurement and quality, but without the high transactions costs that have become the hallmark of Bank finance.

At the same time, many of the development challenges in the foreseeable future – climate change, low agricultural productivity, growing water scarcity – are increasingly global in nature. Looking ahead, the Bank will have to shift from lending to governments towards financing the provision of global public goods.

A more successful developing world also poses an intellectual challenge to the Bank as a custodian of research and policy thinking in the field of development economics.

The Bank, which has drawn predominantly upon US-based centres of learning, can no longer ply a single model or dictate from a universal template. To be fair, the Bank has embraced the message of eclecticism, but a new leader will have to go further, paying greater attention to the specific contexts and demands of individual borrowers and learning from a wider set of successful experiences.

The Bank’s major shareholders also face a stark choice. If they believe that the Bank has a meaningful future worth supporting, it is the rapidly growing emerging-market countries, not the indebted West, that can provide the resources (this means China, of course, but even Brazil and India have growing aid programmes).