Former Mastercard CEO inherited a corporate culture that left the World Bank Group too focused and slow to respond
Posted Date – Sat 06 May 23 at 12:30am
by Rachel Kate
Hyderabad: Over the past two years, calls to reform the World Bank have been on the front pages of newspapers and on the agenda of heads of state.
Many low- and middle-income countries — the populations the World Bank is tasked with helping — are sinking deeper into debt and facing rising costs as the severity of climate change impacts grows. A chorus of critics accused the World Bank of failing to respond to the crisis.
The job of leading the reform now falls to Ajay Banga, an Indian-American businessman and former MasterCard CEO who was named World Bank president on May 4.
There is no shortage of suggestions for what Banga and the World Bank need to do.
The Group of 20 recently released a report urging the World Bank and other multilateral development banks to ease lending constraints and allow more funds to flow to countries in need. The committee, led by economists Nicholas Stern and Vera Songwe, called for a rapid and sustained boost to investment, prioritizing the transition to clean energy, meeting the United Nations Sustainable Development Goals and meeting the The needs of increasingly fragile states.
African finance ministers will soon be drawing up their own “to-do” lists for the World Bank, and India’s finance minister has just convened a panel to consider World Bank reform.
Banga will get to work with these and many other to-do lists. Yet he inherited a corporate culture that made the World Bank Group too focused and slow to respond.
I worked for the World Bank Group and worked with it externally. I think Banga needs to master four key roles from the beginning – the four “C’s”. Judging by his track record and thoughtful reputation, I believe he can.
* Be the CEO, clean up the house
The World Bank Group is a conglomerate with four balance sheets, three cultures, four executive committees, and a dispute resolution department. Lending to low- and middle-income countries is only part of its role. The World Bank Group also provides technical assistance in all areas of economic development, and invests and provides risk insurance to encourage businesses to invest in projects and locations they may consider too risky. Its ability to mobilize private sector finance and make the most of every dollar is critical to meeting the world’s development and climate adaptation and mitigation needs.
Banga needs to set clear goals for every part of the World Bank Group and get them to work more effectively to help the world achieve its goals.
* Become the chief collaborator in responding to the crisis
Many of the World Bank Group’s client countries face rising debt and rising costs from climate change. High borrowing costs can hamper developing countries’ ability to invest in the infrastructure needed to grow and protect their economies, and they fear being excluded from global trade because of U.S. green subsidies in the Lower Inflation Act and European A border carbon tax could make it harder for them to compete.
Solutions to cascading problems like this cannot be managed by one institution. However, the current multilateral development banking system – the World Bank Group and regional development banks – is at best disjointed and at worst highly competitive.
In the past, the leaders of development banks, the IMF, and the World Trade Organization have more or less cooperated, depending on the crisis and individuality, and can act quickly when needed. For example, during the global financial crisis of 2008 and 2009, the then-heads of the World Bank and WTO rushed to develop trade finance mechanisms to support banks in developing countries amid capital flight to the US and Europe. Pushing rich countries and institutions to funnel money out to support business and trade requires intensive diplomacy. Success is not measured in months but in days.
The new World Bank president will need to support more radical collaboration among development finance institutions, including pooling capital and talent to help respond quickly to countries’ needs. It’s not easy. Institutional competition runs deep. But with budgets stretched, it’s becoming increasingly apparent that there is no alternative – the capital already in the system is the closest thing that can be deployed to produce better results if institutions are willing to adapt.
* Be a convener and get everyone involved
Overhauling the way international finance works requires the participation of everyone – development banks, central banks, regulators, investment banks, pension funds, insurance companies and private equity.
Banga and IMF Managing Director Kristalina Georgieva could address the institutional differences and offer advice to private investors and major lenders (including China, which has become the largest holder of developing country debt) Show a coordinated face to expedite support for troubled nations.
On other issues, such as nature-based solutions to climate change, building resilience, and economic inclusion, the World Bank Group can bring its vital resources and skills, including data analysis, to global conversations it has been absent from for the past four years .
* Be an advocate for the most vulnerable
The world’s most vulnerable people are the ultimate beneficiaries of the World Bank Group. For people living on the frontlines of biodiversity loss and climate impacts such as extreme heat, drought and flooding, the current international financial system is proving insufficient.
The World Bank Group’s management incentives remain too focused on board-approved loans rather than the outcomes of loans, advice, and aid.
Throughout its history, World Bank leaders have been able to make swift changes to better help fragile states while paying close attention to the needs of end beneficiaries and the goals set by the world.
The new president faces turbulent times. Banga’s careful listening on his campaign tour shows he understands complexity. It’s a remarkable moment in the institution’s history, and there are high expectations of what a leader needs to do. www.theconversation.com
