Ideas to Action:

Independent research for global prosperity

Share

What are the chances that you would have not one, but two opportunities to contemplate the World Bank’s capital constraint here on CGD’s website? Better yet, what are the chances you would want to?

Ok, before you answer that second question (don’t click away yet!), let me try to convince you that new papers by Devesh Kapur and me on this seemingly weedy topic actually speak to some far-reaching and fundamental issues facing the world’s largest development institution.  

Coincidentally, Devesh and I found ourselves contemplating the same problem at the bank a number of months ago. Namely, how can the World Bank break out of existing constraints — financial, governance, political — to become a larger and more relevant institution? Or to put it negatively, how can the World Bank avoid shrinking into obscurity on the world stage, which may very well be the path of the status quo?

Of course, we’re not the only people thinking about these issues. They’re certainly on Jim Kim’s mind. A major component of his new strategy for the institution seeks to overcome some of the financial constraints that currently exist.

While Devesh and I have the same starting point, we arrive at different recommendations. And while our recommendations are not mutually exclusive, where we part ways is in our assessment of the bank’s ability to raise capital from its shareholders.

Interestingly, we share common cause against the current thinking within the World Bank, which seems to rule out any consideration of the bank’s own shareholders as a source of future capital.

Devesh wants to provide a mechanism, via contingent capital, that would tap the resources and will of the countries that have been most vocal in making a case for a bigger capital base (and bigger World Bank).  In his estimation, large emerging-market countries are prepared to step forward with more capital, and he offers them a mechanism to do so.

I’m all for more capital from China, India, and Brazil, but I don’t want to write off the United States, France, and Germany in the process. In fact, given the right mechanism, in my case a “Bank Resource Review,” I think the bank’s largest shareholders could be amenable to new funding for all the arms of the institution (IBRD, IFC, IDA, and MIGA) as a transition away from IDA-focused replenishments.

Both of us are motivated by a desire to see a larger institution, and we both gravitate to the bank’s shareholders as the lynchpin. I, for one, am worried that World Bank management doesn’t yet seem to be looking to shareholders to play this role, preferring instead to cut budgets and chase private capital.

Here’s hoping that these two papers can help put some of the focus back on the World Bank’s shareholders.