Why the World Bank Can Now Afford to Say No to the United States

December 15, 2016

When you consider that the 18th "replenishment" of the World Bank's International Development Association (IDA), just concluded in Yogyakarta, Indonesia, is traditionally a fundraising exercise with IDA's donor countries, then an outcome that shows IDA resources jumping from $52 billion just three years ago to $75 billion today suggests that donors are feeling remarkably generous these days.

Dig deeper, though, and something different, but no less remarkable, is going on. The fact is this replenishment was not primarily about donor pledges. Instead, it marked a fundamental turning point for the World Bank, with an agreement among the donors to allow the bank for the first time to leverage IDA's resources through borrowing in the marketplace.

More on this in a minute, but first it's also important to recognize the major policy decisions taken as part of this replenishment. It is satisfying and encouraging to see a range of commitments that align with key recommendations from CGD's High Level Panel on Multilateral Development Banking. These include the financial reforms themselves, greater effort toward crisis preparedness, more focus on fragile settings, a new collaboration with IFC to better target private sector development at the bank, and new commitments to pursue global public goods like climate financing. All of these commitments, if implemented effectively (something that bears watching), should move the World Bank closer to the institution it needs to be in the face of today's development challenges as laid about by our panel earlier this fall.

But let's consider more closely the impact of those financial reforms. Assuming that traditional IDA donor contributions stayed the same in this replenishment (the World Bank will not release details about donor pledges until early next year, but it's a safe bet that donor contributions as a whole did not increase from the $35 billion in commitments in 2013), those contributions as a share of total IDA resources have now fallen significantly, from two-thirds of total resources three years ago to less than half today. Consider the United States in particular. In the last IDA replenishment, the Americans pledged $3.9 billion, which accounted for about 7.5 percent of total IDA resources. The same pledge today accounts for just 5 percent of the total replenishment.

As a one-time change, this is striking, and as a directional shift, the longer term implications are huge. To put it bluntly, by opening the door to a major source of non-donor financing in the years ahead, these financial reforms will mean that the World Bank can now literally afford to say no to the United States and other major donors like the United Kingdom and Japan on a range of policy matters.

The implications of this are far-reaching. Will it remain a given that the US nominee will continue to capture the World Bank presidency? Will the bank continue to avoid working in countries like Iran and Zimbabwe at the behest of the United States alone? Will the World Bank bend to the will of a new political regime in Washington and reverse course on its coal financing restrictions? Historically, the United States (and often the US Congress) has exerted its will on issues like these by using the threat of withholding its IDA contributions in any given year. As this contribution becomes vanishingly small relative to total resources, that threat starts to look pretty weak.

Going forward, it is likely that the United States will need the World Bank more than the bank needs the United States. As I’ve said elsewhere, the United States relies on the bank as an extension of its strategic and foreign policy in a way that is unique among the institution’s shareholder countries. What China does bilaterally through entities like China Exim Bank and China Development Bank, the United States mostly seeks to do through the World Bank and the other MDBs in which it is a leading shareholder. Major World Bank commitments to support the Obama administration's Power Africa initiative are a positive example of this.

In practice, the US has often exerted its will with the power of the IDA contribution as a key, if not leading, point of leverage over the institution.

US policymakers will need to do some hard thinking about how best to prioritize the demands they place on the bank, and how to reach broader consensus in this multilateral institution as an alternative to seeking to impose its will unilaterally. It's not at all clear that the incoming Trump administration, with its "America First" sloganeering, is up for this kind of hard thinking. But hope springs eternal. And in any event, this IDA replenishment sets the World Bank on a path that will help to ensure a future of sustainable financing in support of the institution's vital mission.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.