The National Journal quoted CGD president Nancy Birdsall on the World Bank.
New Stripes At The World Bank (subscription required)
Robert Zoellick pounces on the World Bank's old bureaucracy to encourage new practices and policies.
Saturday, April 17, 2010
by Bruce Stokes
After Robert Zoellick became the World Bank's president, he instituted a daily 8:30 a.m. meeting of the institution's two dozen or so vice presidents and managing directors. The gathering lasts 20 minutes to an hour, and those assembled in a 12th-floor conference room at the Bank's H Street headquarters talk about their departments' programs and plans. For a group of senior international professionals, many of whom come from cultures where the workday begins leisurely in midmorning, Zoellick's innovation, while not uncommon in U.S. corporate and governmental settings, was poorly received, to put it mildly. The mandatory meeting is regularly lampooned in the Bank staff's annual April Fool's Day parody newsletter, Bank Swirled.
But participants also acknowledge that the session has become an invaluable marketplace for exchanging ideas. It is emblematic of the cultural change that Zoellick has tried to bring to this behemoth institution, which -- with 185 member nations and more than 11,000 employees spread around the globe -- can easily slip back into its traditional way of doing business.
"We are an organization that thinks we are the smartest people out there," a senior Bank official acknowledged. "Bob pokes and probes and makes us all better. Having done that, he is very empowering. To me, he has moved the bar quite a bit."
Zoellick, a former deputy secretary of State and U.S. trade representative, was appointed on June 25, 2007, to succeed Paul Wolfowitz, who had resigned amid controversy over the generous compensation he gave to his girlfriend, who was also a Bank staffer. Less than three years later, as the institution prepares for its annual spring meeting in late April, Zoellick has made the Bank his.
"The institution was in crisis when I came here," Zoellick told National Journal in an interview. (See "Zoellick Talks Innovation") "And we have a turnaround story" to tell.
"I relied on a hunch about the people who came to the Bank," he continued. "They came here because of a commitment to a mission of overcoming poverty and helping developing countries. And the sooner I could get them back focused on the mission, as opposed to daily office anxieties, the better we would be. And that is what we did."
That focus quickly sharpened as the world was shaken by skyrocketing food and fuel prices and then blindsided by a financial crisis that led to the worst economic downturn in two generations. The Bank responded by nearly tripling its lending commitments, moving more money to needy countries than even its sister institution, the International Monetary Fund. The Bank also accelerated general budgetary support for borrowers with fewer strings attached. At the same time, Zoellick froze the salaries of senior Bank officials; capped the administrative budget; continued to decentralize operations; enhanced the transparency of Bank operations; and cracked down on corruption.
His efforts have received high marks. "Bob Zoellick has been a real breath of fresh air at the Bank," Sen. Judd Gregg, R-N.H., said. "I have been very impressed with his leadership. He has brought a lot of transparency and high standards on the accounting, on the ethics side, and on the results side. I think our dollars have been well used."
But the World Bank's accelerated lending is not universally applauded. Some critics worry that it will undermine the environmental and social safeguards they have worked to include in Bank loans over the last three decades.
"This is a very pivotal moment," said Nancy Alexander, director of the economic governance program at the Heinrich Boell Foundation of North America. "If public institutions cannot defend a social and environmental agenda, it will take decades to recapture this agenda."
Next year, Congress gets to weigh in on the Bank's performance and Zoellick's tenure when it votes on the Bank's first general capital increase from Washington in decades.
It will be, said Vince McElhinny, a program manager at the Bank Information Center, a nongovernmental World Bank watchdog, "a once-in-a-generation opportunity to reflect on the Bank's core mission and the virtues of multilateral development cooperation."
Responding To Crises
Less than a decade ago, when developing countries had ready access to private capital at low interest rates, financial commentators speculated that the World Bank Group -- which consists of the International Bank for Reconstruction and Development (the World Bank itself); the International Development Association (the Bank's concessionary loan window); the International Finance Corp. (which partners with the private sector in lending to poor countries); and the Multilateral Investment Guarantee Agency -- had outlived its usefulness. But the last few years have been a painful reminder of the institution's crucial role as a lender of last resort.
It is easy to forget that dramatic spikes in fuel and food prices, which hit the poor particularly hard, preceded the financial crisis of 2008-09. This triple whammy placed unprecedented demands on the Bank.
"Starting in 2008, when the crises began to erupt," said Agustin Carstens, the Mexican Central Bank's governor and a past chairman of the World Bank's Development Committee, "it was very clear that the Bank needed to provide timely support to vulnerable countries, especially those facing negative shocks."
The institution stepped up to the plate. From July 2008 through last month, the World Bank Group disbursed $67.7 billion, more than the IMF's $56.9 billion.
"It was really good that the Bank found a way to move a lot of money," said Nancy Birdsall, president of the Center for Global Development, a Washington think tank. "There was a big push when there was a need for a global stimulus."
Increased lending also involved a shift in clientele away from the poorest countries. Wealthy nations' governments, wanting more worldwide stimulus and seeing that private lending to middle-income countries had dried up, pressed the Bank to provide more money to those economies. It did: Four-fifths of the Bank's lending in fiscal 2009 went to a handful of nations, with India alone getting $3.2 billion and Indonesia receiving $4.4 billion.
In a move that appeared counterintuitive for a development institution, loans to the poorest countries did not increase. But middle-income nations' borrowing problems posed a systemic threat to the world economy; their return to growth was critical to reviving global commerce. Moreover, 70 percent of the world's poor reside in middle-income countries, primarily China and India, and these nations also face rapidly growing environmental and climate-change challenges.
Direct Budget Assistance
Lending was also boosted by accelerating changes in the Bank's loan portfolio. A few years ago, loans went largely to specific projects, such as schools or roads, the kind of lending that disburses the money over an extended period, usually several years. Now, half of the Bank's lending is in the form of "development policy loans," a rapid infusion of money directly into a borrowing nation's budget to support major policy changes, such as reforming the transportation or health care system.
"The move to development policy lending is in the right direction," Birdsall said, "because project loans only added to the fragmentation and lack of coordination in borrowing countries because there were so many donors and their safeguards were just another administrative burden. In the end, you can't ignore safeguard issues. But the way out of the swamp is not to look at the outcome of the project but to look at the development outcome for the country." As a result, the Bank judges development policy lending by broad results rather than specific outcomes on specific projects. Such lending also responds to developing nations' demands that they be allowed to pursue their own investment priorities without World Bank second-guessing.
"In Mexico," Carstens said, "when I was in the Ministry of Finance and had to deal with World Bank issues, it was very hard for me to persuade line ministers to engage in a World Bank program. A minister would say, 'I need to solve this problem in the next six months, not the next three years.' The conditionality was not in line with the needs of the country. And since the Bank was not satisfying the needs of a large part of its constituency, something needed to be done."
"It was really good that the Bank found a way to move a lot of money [during the financial crisis]. There was a big push when there was a need for a global stimulus." -- Nancy Birdsall, president, Center for Global Development
However, nongovernmental development organizations worry that the sheer volume of new lending, with no increase in the Bank's staff or budget, will lead to less oversight. Said McElhinny: "This massive push in additional lending volume has come with a perceived loss in quality; a sharp decline in the use of cost-benefit analysis; poor results frameworks; and a proliferation of indicators that tend to measure outputs rather than outcomes."
Critics also fear that the World Bank is moving away from a culture of "supervision and compliance" -- close monitoring of specific projects and their outcomes -- to a culture of "implementation support": lending focused more on helping developing countries carry out their own priorities. In particular, they see the shift to policy loans as undermining environmental and social safeguards.
"It is important to remember that what makes the Bank an indispensible institution is not just its lending," Carter Roberts, president of the World Wildlife Fund, said. "It's [also] the design and the safeguards that accompany the loans."
Others question whether greater lending flexibility will lead to better development outcomes. They note that policy lending shifts greater responsibility for loan implementation and oversight to the borrower. Although this may please those nations, critics worry that many of them lack the capability to enforce meaningful safeguards. "Countries that are needy are not usually good performers," Heinrich Boell's Alexander said.
Energy And Climate
Concern about environmental safeguards is particularly acute because the Bank is positioning itself as a leader in international efforts to manage the energy needs of developing countries and respond to the challenges posed by climate change.
"I felt when I came here," Zoellick said, "that we were a little bit behind the curve, and that there is a lot we could do in this area that did not have to wait for treaties but could emphasize practical work on the ground."
To that end, the Bank wears multiple hats. It is a trustee of the United Nations' Adaptation Fund, which helps countries plan for and cope with the consequences of climate change. It serves as a secretariat for the Climate Investment Funds, which help developing countries start and deploy transformative low-carbon technologies and projects. It is an implementing agency for other U.N. funds, such as the Global Environment Facility, and it provides direct financing out of its own capital for climate adaptation and mitigation projects.
In fiscal 2009, new World Bank Group financing for renewable energy and energy efficiency amounted to $3.3 billion, accounting for more than 40 percent of the bank group's total energy lending. Clients use these loans to attract private-sector borrowing, multiplying the impact of Bank lending as much as tenfold.
Critics, however, complain that Zoellick's climate-friendly rhetoric often clashes with Bank practice. In early April, the World Bank's board approved a $3.75 billion loan to Eskom Holdings, a South African utility, primarily to help build a coal-fired power plant north of Johannesburg. One-fifth of the loan will go to wind, solar, and energy-efficiency projects.
The loan highlighted the Bank's conundrum. As a development institution, it has long supported projects that spur overall economic growth, and electricity shortages are a chronic problem in South Africa. But the decision was also political: The Bank is under pressure to be more responsive to its emerging-market members. Environmentalists argued that the Eskom loan was hypocritical. Building a huge coal-fired generating plant that will spew tons of carbon into the air will worsen global warming, which the Bank is attempting to halt.
Bank officials justify their action by insisting that South Africa will install the cleanest coal generators possible. In a letter that Zoellick sent to Congress before the Bank board's vote, he argued that "coal is still the least-cost, most viable, and technically feasible option for meeting the base load power needs required by Africa's largest economy."
Nevertheless, the United States, the United Kingdom, the Netherlands, and Italy abstained from the vote on the loan, asserting that it violated either the Bank's or their own country's lending guidelines. Several nongovernmental organizations have filed a complaint with the Bank's internal inspection panel, contending that the loan-approval process failed to consider the coal plant's effects on local livelihoods, access to water, and residents' health. The furor will likely heighten public scrutiny of the Bank's energy lending.
Zoellick's Record
The global challenges that confronted Zoellick almost from the day he took office overshadow the profound impact he has had on the World Bank as an institution, its culture, and its mission.
Zoellick has a firm grasp on "the vision thing": He has long been known as a strategic, conceptual thinker. Zoellick has used the bully pulpit of the Bank presidency to call for a modernization of multilateralism by involving China, India, and other emerging-market economies more directly in management of the global economic system while demanding that these nations also take on new responsibilities.
"He has been at the forefront of 21st-century thinking about international economic architecture," said a Senate Democratic staff member who follows the Bank.
Zoellick has also adapted the Bank's mission to the new century's concerns: climate change; help for war-torn states such as Pakistan and Afghanistan; and engagement with the private sector. And he has pushed his staff hard, demanding that they refocus on their mission and outcomes, not bureaucratic processes.
The success of Zoellick's tenure will ultimately depend on his ability to steer the institution's unwieldy bureaucracy in a new direction and burnish its sullied reputation for probity and effectiveness. "His leadership style," said the World Wildlife Fund's Roberts, who has worked closely with Zoellick on conservation issues, "is characterized by a voracious appetite for facts, peripatetic world travel, and an ability to absorb reams of information and feed it back to you."
Observed a senior Bank official: "Bob is the first president of the Bank who comes closest to the Bank staff in being a technocrat. He talks their language."
"Bob Zoellick has been a real breath of fresh air at the Bank. I have been very impressed with his leadership." -- Sen. Judd Gregg, R-N.H.
Zoellick is also more inclusive than many expected. "He came in as someone who had a reputation of being incredibly smart and able to grasp issues," said Samuel Worthington, president of InterAction, a coalition of U.S.-based nongovernmental organizations focused on the world's poor. "But what is interesting is his comfort in bringing in a multiplicity of views, including those he does not necessarily control."
A less-well-known aspect of Zoellick's personality is his passion for the preservation of the tiger's habitat. Paintings and photos of the big cats adorn his office walls, and he has involved the Bank in efforts to save the dwindling species.
"Why is Bob Zoellick working on tigers?" Roberts asked rhetorically. "The short answer is, to save tigers, you have to improve conditions in some of the most critical parts of the planet. And that creates benefits for people, as well. But you shouldn't discount the fact that Bob Zoellick also loves animals."
At the same time, no one has ever accused Zoellick of being warm and fuzzy. He can be withering with staff members, and he is said to have a distant relationship with his managing board, which can be an insatiably demanding group.
Zoellick has also pushed the institution's staff to do more with less. At $1.741 billion, the administrative budget has been flat in real terms for five years. Moreover, the decentralization of Bank staff, out of Washington and into the field, continues. In 2000, 71 percent of employees worked at the Bank's headquarters; today, only 63 percent do. Zoellick's aim is to move more operations overseas; he has also appointed more women and senior management personnel from developing countries.
Belt-tightening started at the top. "During the crisis," said Zoellick, who earns $441,980 net of taxes, "I got all the officer-level people, about 40 people [in the Bank], to agree to no pay increase. So you're talking about bonuses for some people [on Wall Street], but here we kept all the salaries the same."
Moreover, he has pushed member governments to be more forthcoming with their capital contributions to the Bank. "I discovered," Zoellick said, "that our developing-country shareholders had put in 10 percent of their money in hard currency [such as dollars and euros] and 90 percent in local currency. And we did not have access to [the local currency]. So we have been working with these countries to get them to enable us to have access to it to use as capital. It is a big issue not only with China, which has been forthcoming, but also with Russia and Saudi Arabia. And we will raise over $1 billion in capital that was untapped before that."
Anti-Corruption Drive
When Zoellick took the helm, the Bank was beset by corruption scandals. A commission headed by former Federal Reserve Board Chairman Paul Volcker made a series of recommendations to tighten internal anti-corruption practices. Bank officials say they have implemented the changes.
Zoellick also hired Leonard McCarthy, who used to run the famed South African Scorpions anti-corruption agency, as the Bank's vice president for integrity. The Bank boosted the integrity unit's budget by a third and doubled its staff. McCarthy is now closing twice as many anti-corruption investigations annually.
In early April, the World Bank and four other multilateral development lenders agreed to bar from bidding on their contracts any firm or individual found to have engaged in wrongdoing on development projects. So far this fiscal year, the World Bank has banned 44 companies.
Zoellick has been creative in responding to corruption. Late last year, the Bank struck a deal with Siemens in which the German multinational corporation pledged to distribute $100 million over 15 years to nonprofit organizations worldwide that promote business integrity and fight corruption. A Siemens subsidiary was also barred from Bank work for four years. The settlement resolved allegations of corruption in a Moscow urban transportation project involving Siemens and World Bank funding.
But in the end, Zoellick said, keeping the system honest "is an ongoing challenge. You have to build it into the DNA. You have to build it into the project development, the risk management. This is one you can never let up on."
Making the Bank's operations more transparent would help. "One of the best ways to design anti-corruption programs," he said, "is to design them so you have got public participation, so that the people can see what is going on and that, in effect, you enlist them to be your investigators."
Zoellick acknowledges, however, that "it is hard for public institutions to really open themselves up. I really believe -- while it is not easy, and sometimes it makes your life miserable -- you have got to do it. So we are implementing an information-access policy that will be state-of-the-art in the multilateral world. And the neat thing about it is that it draws heavily on the U.S. Freedom of Information Act experience and also the Indian freedom of information act experience."
By July 1, country-assistance strategies, project appraisals, and other program documents will be publicly disclosed when they are distributed to the Bank's board, giving affected parties, civil-society groups, and other stakeholders an opportunity for input before lending decisions are made. Although a borrowing country can still block the release of such information, observers welcome the bank's efforts as long overdue.
"There is a sense among people on Capitol Hill who are following the issue," Gregg said, "that Zoellick has aggressively pursued the corruption issue."
Judgment Day
Over the next year, World Bank members will have two opportunities to pass judgment on the institution's new direction and Zoellick's leadership. The Bank has asked donor nations for more capital to boost its lending capacity, and it hopes to institute a number of governance reforms to enhance the voice and vote of developing countries.
The institution is seeking a general capital increase with $3.5 billion paid in at the outset, which would boost its usable equity to $40 billion. This increase is part of an overall fundraising effort that includes more capital contributions from developing countries, a higher interest rate charged on Bank loans, and greater access to the paid-in capital contributed by some higher-income developing countries. The U.S. portion of the increase would amount to $117 million annually for five years.
"One has to recognize that all countries are under [financial] stress," Zoellick said. "We respect that. We take each dollar seriously. And in this case, I am actually a fiscal conservative. I did not rush out to ask for this. I tried to demonstrate that we could use the capital that we have. And we have demonstrated it."
Complicating matters is that other regional development banks are also seeking more capital, and some -- such as the Asian Development Bank and the African Development Bank -- are requesting even more money than the World Bank. But the World Bank is expected to have an easier time on Capitol Hill because of its better reputation.
"When you go for a capital increase," noted Clay Lowery, a managing director of the Glover Park Group and the former assistant Treasury secretary for international affairs in the George W. Bush administration, "you realize you will be competing for fiscal resources in a tough time. And you open yourself to forms of conditionality from shareholders. Who knows what people will be asking for?"
To that end, congressional skeptics have already fired a shot across the Bank's bow. "The [Obama] administration and other donor countries of the G-20 should be firm in demanding that needed reforms are secured before committing additional funds," concluded a March report based on six hearings held by Sen. Richard Lugar, R-Ind., the Foreign Relations Committee's ranking member. The report recommended that "to the extent possible, the administration should pursue temporary capital increases, given that the impact of the global financial crisis will eventually wane."
Key House members have their own bones to pick. Financial Services Committee Chairman Barney Frank, D-Mass., wants the Bank to be more sensitive to workers' rights when making loan commitments. "We have to see more progress before the ink is dry on the general capital increase," he said. "But we have gotten great progress. I am confident we are now going to get it fixed."
Critics from nongovernmental organizations that work with the Bank contend that it has yet to fully implement its anti-corruption measures and that questions remain about the effectiveness of much of its lending. They also wonder whether developing nations' demand for Bank lending will remain high after the economic crisis ebbs.
In the end, most observers think that Congress will approve the capital increase next year as part of the overall federal budget. No separate floor votes are planned to shield lawmakers from criticism that they supported a particular loan or the practices of a specific World Bank member's government. "I get the sense it will go ahead," Birdsall said. "The Bank is seen as competent, with good leadership. And I think that when the United States gives the nod, everyone else will fall in line."
More Diversity In Leadership
The Bank is under great pressure from developing countries to increase their voting power on the institution's governing board, to reflect the growing role that emerging markets play in the global economy. An international consensus is evolving to boost the voting share for China, for example. The United States has a 16 percent share of the governing board's votes, which is sufficient to veto any bank actions, and there are no plans to dilute Washington's position.
Demands are also mounting that someone other than an American should head the Bank: All 11 presidents have been from the United States. So far, the discussion has been couched in diplomatic parlance about choosing the next president based on "merit," but the intent is clear.
Many Bank employees and people in the development community presume that Zoellick, whose term expires in 2012, will be a one-term president. He is a Republican and doesn't appear to have close ties to the Obama administration. Whether a non-American succeeds him is another matter, however. The World Bank is the only major international institution now headed by an American, and the Obama White House denies that it is considering giving up the post.
"The idea that this will be purely merit-based is just laughable," Lowery said. "It is a political issue. And the last thing other countries need is for the United States to lose interest in this institution," he added.
"It would be a foolish and unnecessary act," Gregg agreed.
"Having an American at the helm of the World Bank helps ensure continued U.S. support for the institution and facilitates communication with the World Bank," the Lugar report concluded. "Should the administration choose not to follow this recommendation, any deal to loosen the citizenship directives on leadership at the IMF or World Bank should include loosening the citizenship directives at the regional development banks." In other words, if an American cannot lead the World Bank, Americans should be eligible to head other regional development banks, whose chiefs are normally drawn from the rest of the world.
The final report card on Zoellick's tenure is yet to be filled out. But more than halfway through his first term, his marks are good. "The reforms Zoellick has undertaken are very, very positive," a senior Obama administration official said. Even longtime Bank critics appreciate his administrative and bureaucratic skills. "Zoellick has done an excellent job in the recovery stage after the Wolfowitz trauma," said Bruce Rich, an environmental lawyer in Washington who has written extensively about the Bank. "He has shown good leadership in responding to crises, but sometimes at the cost of pursuing contradictory policies."
All told, Zoellick heads into the Bank's annual spring meeting with a strong hand.