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CGD in the News

April 5, 2019

Trump nominee wins job to run World Bank (Washington Post)

From the article:

World Bank directors selected White House nominee David Malpass on Friday to run the institution after an uncontested race, giving the job to a former Trump campaign adviser and Treasury official who has at times spoken critically of the bank.

Development officials had expected a more competitive contest for the job after the previous president, Jim Yong Kim, stepped down in January. But no other countries nominated candidates, apparently content to stick with the long tradition of allowing the United States to choose the bank’s leadership.

In a message to World Bank staff on Friday, Malpass sought to reassure skeptics who have called out his and the White House’s critical remarks on multilateral institutions.

Malpass also repeated his intention to focus the bank’s attention on the neediest nations, a priority that could cause friction with the World Bank’s more affluent borrowers, including China.

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One of those reforms winds down lending to higher-income countries such as China, a plan Malpass has endorsed.

“China is the world’s second-biggest economy,” he said in February. “It doesn’t make too much sense for the higher-income countries to be drawing so many of the resources of the bank when there are poorer countries that could make use of those resources.”

Scott Morris, a former Treasury official and senior fellow at the Center for Global Development, said Malpass’s Friday remarks were an “important and constructive signal,” but that bank shareholders would have to exercise strong oversight to be sure the bank’s mission stays on track.

“As bad as the Trump administration’s posture and policies are on climate change or support for refugees, Mr. Malpass now seems to recognize that he is accountable to a diversity of governments and shareholders — not just one. But saying he understands the multilateral goals of the bank is one thing, and embracing the agenda is something else,” Morris said.

Doug Hertzler, senior policy analyst with ActionAid USA in D.C., said he found it “disturbing” that “someone who has been against international cooperation would be named to head the World Bank, really without much objection.”

The Trump administration has questioned the value of multilateral institutions including the United Nations and the World Trade Organization. But it supported a funding increase for the World Bank last year, which raised $13 billion from member countries.

In exchange, the White House got the bank to agree to reforms, including a review of the salaries of board members and staff, which the administration viewed as excessive in some cases. Senior managers this year received no salary increases.

 

March 14, 2019

Trump's pick Malpass has clear path to lead World Bank, no challengers emerge (Reuters)

From the article:

U.S. President Donald Trump’s pick to lead the World Bank faces a clear path toward approval as a nomination deadline passed on Thursday with no challengers, continuing the tradition of the United States choosing the development lender’s president.

David Malpass, the U.S. Treasury’s undersecretary for international affairs, will interview with the World Bank’s executive directors in the coming days, the bank said in a statement.

The directors expect to conclude their selection process before the World Bank and International Monetary Fund spring meetings on April 12-14, the bank said.

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Malpass also has said he was committed to pursuing the World Bank’s goals on combating climate change, which have been at odds with the Trump administration’s support for coal. The lender has largely withdrawn from financing new coal-fired power projects in favor of renewable energy projects.

Pledging to stay the course on climate change goals will likely win support for Malpass from board members, said Scott Morris, a senior fellow at the Center for Global Development and a former Treasury official.

“He’s distanced himself from some of his past positions,” Morris said. “His message has been that he’s committed to implementing the bank’s agenda put forth in the capital increase last year. That’s an ambitious agenda, not one of dialing the bank back.”

Morris added that it would be “extremely unlikely” that Malpass would be rejected by the bank’s board in the absence of other candidates.

One of Malpass’ first issues to handle at the bank would be dealing with the aftermath of a U.S. Supreme Court ruling that opens the door to lawsuits against the International Finance Corp, part of the World Bank Group, in American courts over projects it finances.

 

March 13, 2019

Trump’s World Bank Nominee Tries to Distance Himself From the President (The New York Times)

From the article:

WASHINGTON — When President Trump selected David Malpass to lead the World Bank last month, he showered his nominee with gratitude for years of loyal support, praised his intelligence and made one thing abundantly clear: The World Bank under his watch must put America first.

“My administration has made it a top priority to ensure that U.S. taxpayers’ dollars are spent effectively and wisely, serve American interests and defend American values,” Mr. Trump said. He noted, not for the first time, that the United States was the bank’s biggest donor and said that Mr. Malpass “has been a strong advocate for accountability at the World Bank.”

But as Mr. Malpass, 63, canvasses the world to seek support for his candidacy, he is trying to distance himself from his boss. In meetings with dozens of world leaders in both established and developing economies, Mr. Malpass has struck a conciliatory tone and tried to assure other nations that he will not simply serve as a proxy for the United States president.

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Mr. Trump himself has called global warming a “hoax” and promotes climate change deniers on Twitter. He has also vowed to pull the United States out of the Paris Agreement and said that the pact among nearly 200 nations to voluntarily curb greenhouse gases “hamstrings the United States.” Those positions have made other global leaders apprehensive about whether Mr. Malpass can effectively take the reins on what has become a core issue for the bank.

“As he has made the rounds, this is the key area where he would have to provide reassurances,” Scott Morris, a senior fellow at the Center for Global Development, said of preserving the bank’s climate agenda. “That said, it’s still hard to imagine him going off to the climate summits and being a cheerleader.”

March 12, 2019

China’s Tab at World Bank May Get Squeezed Under Trump’s Nominee (Bloomberg)

From the article:

In the summer of 1981, a poor, technologically backward country looking to move up in the world got its first loan from the World Bank. China borrowed $200 million to modernize its universities so they could churn out more scientists and engineers—a big step for a nation whose average worker earned less in a year than most Americans did in a week.

More than three decades later, China is the world’s No. 2 economy, with more than $3 trillion in foreign-currency reserves and development banks of its own that lend around the world. It’s also one of the World Bank’s biggest borrowers. But maybe not for long.

China’s huge trade surplus with the U.S., along with its plans to muscle into such areas as artificial intelligence, has raised hackles in Washington. President Donald Trump tends to talk about China in zero-sum terms: Its rise is a threat to America. Curtailing World Bank lending to China would fit with the administration’s efforts to contain Beijing’s economic power.

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As part of a deal that paved the way for a $13 billion capital increase from members last year, the World Bank agreed to curb lending to “upper-middle-income” countries. Nations with per capita incomes above roughly $7,000 are supposed to start the process of “graduating.” If they still get loans, it should be to finance “global public goods” that markets can’t provide, according to the plan. The idea is that World Bank capital could be harnessed to fight problems that transcend borders, such as global warming.

Yet only 38 percent of World Bank loans to China went to public goods such as pollution control in the last three years, according to a new report by Scott Morris and Gailyn Portelance of the Center for Global Development. The rest went to such areas as transportation and agriculture that critics argue China could easily finance on its own.

World Bank loans to China are already falling—to $1.8 billion in the year through June 30, from $2.4 billion the previous year. Under Malpass, there could be a further squeeze. Plans for the bank to invest alongside China in some Belt and Road projects may also be shelved. Still, with other nations pushing back on the bank’s board and environmental questions rapidly rising on the list of global concerns, China’s graduation could be gradual.

But Morris says there are downsides to forcing China to quit cold turkey, including the risk that the bank will be worse-equipped to tackle the big global problems its members want it to target. “China is the world's largest polluter,” he says.

March 6, 2019

Demystifying Debt Along China’s New Silk Road (The Diplomat)

From the article:

China has one of the biggest global development footprints in the world. The only country with bigger official international finance flows is the United States.

Still, Washington spent over four times more than Beijing on Official Development Assistance. The lion’s share of China’s official money flows falls under Other Official Finance and is mostly spent on loans for projects in infrastructure, energy, and communications.

These projects are part of the Belt and Road Initiative (BRI), China’s main vehicle for spurring development both at home and abroad. Through infrastructure investments, Beijing aims to better connect China to other parts in the world and to increase trade along the road. Five years after President Xi Jinping announced his plans for the BRI, China has spent about $25 billion on related infrastructure projects.

But to what extent do recipient countries profit from these Chinese investments? At least eight countries are at particular risk of debt distress because of project lending associated with China’s BRI, the Center for Global Development (CGD) reported in March 2018. Critics fear that China is using the loans to create dependency and gain political influence.

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The China Model of Lending

Chinese money fills a gap in international infrastructure funding. So why is it causing debt and debate? For one thing, most BRI funding is based on state-to-state structures. This can create challenges for sovereign debt, with possible implications for bilateral ties.

Usually, loans are guided by standards determined by multilateral institutions like the World Bank, the International Monetary Fund, or multilateral mechanisms like the Paris Club. But China is not a member of the Paris Club, so it doesn’t need to inform members on its credit activities and it doesn’t have to follow any standards.

“Without a guiding multilateral or other framework to define China’s approach to debt sustainability problems, we only have anecdotal evidence of ad hoc actions taken by China as the basis for characterizing the country’s policy approach,” the CDG report concludes.

Instead of universal standards, “China generally follows local laws when it lends for development projects,” Scott Morris explains. Morris is one of the authors of the CDG report on debt among BRI countries. “This can mean high standards when local laws are strong and very low standards when laws are weak.”

The difference with loans from institutions like the World Bank, is that these institutions assess local laws and will impose their own protections if local laws are too weak. China leaves this responsibility with partner-governments and “follows whatever local laws say,” Morris says.

“China is also not as sensitive to debt sustainability issues, such as that lending terms are not strictly aligned with the country’s debt risks,” he adds. To what extend recipient countries benefit from Beijing’s loans therefore strongly depends on their own standards.

Price for Beijing

The debt problems among the BRI countries also come at a price for China. Between 2000 and 2014, Beijing spent $13 billion on actions relating to debt. With debt rescheduling it mitigates risks by extending the terms on loans.

China also carries significant risk itself when lenders default on their loans, according to Morris. Although “debt is essential for infrastructure investment,” Morris says, “large amounts of debt carry significant risks and need to be carefully managed by lenders and borrowers.”

Most importantly, the international critique is also creating a “huge problem in China,” Rudyak says. “The Chinese general public is highly critical of Chinese aid and Chinese loans.” China is not getting its money back and the country is being criticized by the international community. So why, an increasing number of Chinese ask, doesn’t Beijing spend this money on the poor at home?

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Intentions and Politics

The Bretton Woods institutions “are a mirror of post-1945 and the world has changed,” Rudyak says. “But now of course the problem with the reform is that many of the countries that want to have a bigger say are not liberal democracies.”

Morris and his co-authors argue that Beijing should multilateralize the BRI in order to streamline China’s increasing efforts in international development funding and minimize debt problems. “China has valued its engagement with the multilateral institutions and as a result it’s an influential relationship. I think these institutions stand the greatest chance of convincing and helping China to improve its project and lending standards,” according to Morris.

China’s recent step to open a joint Capacity Development Center with the IMF, to train experts on policy and economics so countries can better decide whether to take up loans, is therefore an encouraging move.

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March 1, 2019

China is blocking World Bank report that calls for state-owned enterprise reform (Washington Post)

From the article:

BEIJING —   China has delayed the publication of a report on its economy, written in conjunction with the World Bank, as it tries to tone down recommendations about reforming its state-owned enterprises and allowing more market-led principles to reign.

The report, titled “New Drivers of Growth in China,” has been ready for a year, according to four people involved in drafting the report, but the Chinese authorities have not allowed it to be published.

The delays underscore the Chinese Communist Party’s extreme sensitivity about its economy as growth slows rapidly and, more recently, amid a protracted trade war with the United States.

Many of the core recommendations of the report echo the calls from the United States and other industrialized countries for China to make its trading practices more fair. Beijing’s objections to the report underscore just how difficult it will be for Washington to persuade China to change.

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China is one of a handful of developing countries that is borrowing from the World Bank at the same time as making contributions to its funds. But all the other countries in this situation are small.

“China’s size is off the scale,” said Dollar, who is now at the Brookings Institution. “I would think that the World Bank management would treat China very carefully.”

The World Bank’s International Bank for Reconstruction and Development has committed about $2 billion a year to China for the last three years, making it one of the bank’s largest borrowers, according to a report from the Center for Global Development published in January. 

But at the same time as China has grown richer, its influence on the bank has also grown — and that has concerned the United States. It now has a seat on the bank’s 25 member board and has started contributing increasingly large amounts to the International Development Association, the part of the World Bank that helps the world's poorest countries. 

Beijing contributed almost $600 million in the last round and is expected to contribute more than $1 billion in the next replenishment.

 

February 22, 2019

Explained: Belt and Road Initiative (South China Morning Post)

From the article:

The “Belt and Road Initiative” is a vast China-centred strategy to grow global trade that involves dozens of countries and more than US$1 trillion in investment.

It spans Asia, Europe and Africa, although projects in other regions have also been named under its banner.

Supporters laud it as a bold plan to fulfil the need among emerging markets for infrastructure investment, which Beijing has promoted as a way to boost regional cooperation and connectivity.

But critics warn about a lack of transparency and sustainability with some of the projects – including major ports and high-speed railway networks. There are also concerns that Chinese companies are the sole beneficiaries of the initiative.

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What have been the results so far?

Despite the initial excitement surrounding the initiative’s announcement, construction on some projects has stalled and some countries involved now want to review the deals they originally signed with China, citing fears of unsustainable borrowing.

In December 2017, Sri Lanka was forced to lease the port of Hambantota and 15,000 acres of surrounding land to Beijing for 99 years after Colombo failed to repay the loans used in its construction.

Malaysia, Pakistan and the Maldives have since asked to renegotiate some of their China-backed projects, wary of mounting debt.

Credit rating agency Moody’s has highlighted the lack of transparency surrounding many belt and road projects and the high interest rates attached to some of them, while the Centre for Global Development has identified eight countries – including Laos, the Maldives, Djibouti, Pakistan and Mongolia – at risk of debt distress because of financing related to the initiative.

Xi moved to allay such fears in September 2018 when he told more than 50 African leaders visiting Beijing that a US$60 billion investment package did not “come with any political conditions attached”.

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February 21, 2019

China’s Massive Belt and Road Initiative (Council on Foreign Relations)

From the article:

In 2013, Chinese President Xi Jinping announced the launch of both the Silk Road Economic Belt and the 21st Century Maritime Silk Road, infrastructure development and investment initiatives that would stretch from East Asia to Europe. The project, eventually termed the Belt and Road Initiative (BRI) but sometimes known as the New Silk Road, is one of the most ambitious infrastructure projects ever conceived. It harkens back to the original Silk Road, which connected Europe to Asia centuries ago, enriching traders from the Atlantic to the Pacific.

Some analysts see the project as an unsettling extension of China’s rising power, and as the costs of many of the proposed projects have skyrocketed, opposition has grown in some participant countries. Meanwhile, the United States shares the concern of some in Asia that the BRI could be a Trojan horse for China-led regional development, military expansion, and Beijing-controlled institutions. Under President Donald J. Trump, Washington has raised alarm over Beijing’s actions even as it has abandoned some U.S. efforts to isolate China and deepen its own ties with economic partners in the region.

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What are the potential roadblocks ahead?

While several developing countries in need of new roads, railways, ports, and other infrastructure have welcomed BRI investments, the initiative has also stoked opposition. For some countries that take on large amounts of debt to fund the necessary infrastructure, BRI money is seen as a potential poisoned chalice. BRI projects are built with low-interest loans as opposed to aid grants, explain CFR’s Alyssa Ayres and Elizabeth C. Economy and Johns Hopkins’s Daniel Markey. Some BRI investments have required the use of Chinese firms and their bidding processes have lacked transparency. As a result, contractors have inflated costs, leading to canceled projects and political pushback.

Examples of such criticisms abound. In Sri Lanka, President Maithripala Sirisena sought to renegotiate Colombo’s repayment schedule, but China asked for a long lease on a major port in return for debt forgiveness—some reports indicate Sri Lanka owed $13 billion on its debt in 2018, with expected total government revenues of just $14 billion. In Malaysia, Mahathir bin Mohamad, elected prime minister in 2018, campaigned against overpriced BRI initiatives, which he claimed were partially re-directed to funds controlled by his predecessor. Once in office, he canceled $22 billion worth of BRI projects. The new Maldivian government has also begun to unwind some of the BRI projects introduced under former President Abdulla Yameen Abdul Gayoom, while the China-Pakistan Economic Corridor is at risk as Islamabad faces a balance-of-payments crisis. In 2018, as debts to China began to weigh on its economy, Pakistan sought billions of dollars in loans from Saudi Arabia, the International Monetary Fund, and China.

More such stories are likely, according to a report by the Center for Global Development, which notes that eight BRI countries are vulnerable to debt crises. Five of the eight border China, and two more—Djibouti and the Maldives—are choke points on the Maritime Silk Road.

Arguments against the BRI have in some cases helped propel politicians across the region into office. Christopher Balding, a former professor at the HSBC Business School in Shenzhen, says that the BRI’s “no-strings approach” has, counterintuitively, made some of its investments less attractive. The approach “has fueled corruption while allowing governments to burden their countries with unpayable debts,” he says. Political backlash is perhaps less of a concern in authoritarian countries taking part in the BRI, where autocrats face less public scrutiny and where the Chinese model of governance might hold more appeal. But some governments, in places such as Kenya and Zambia, are carefully studying BRI investments before they sign up, and candidates in Malaysia have explicitly run—and won—campaigns on anti-BRI platforms.

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February 12, 2019

The U.S. Doesn’t Deserve the World Bank Presidency (The Atlantic)

From the article:

During his time in office, President Trump has named a climate-change skeptic and an energy lobbyist as the heads of the Environmental Protection Agency, a foreclosure profiteer to head the Treasury, a low-wage employer to run the Labor Department, and a critic of public schools to manage the Department of Education. His Energy Secretary once argued that the department should be abolished, and his one-time leader of the Consumer Financial Protection Bureau has argued that the bureau should not exist.

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Nor does Malpass represent a strong or reassuring policy vision for the world’s most important anti-poverty institution. “I care deeply about the mission and about breaking out of poverty and achieving growth, and I am sure the World Bank can succeed,” Malpass assured reporters last week, as reported by the Wall Street Journal. But in Congressional testimony, he said institutions like the bank are “not very efficient,” and are “often corrupt in their lending practices and they don’t get the benefit to the actual people in the countries.” He has argued that the institution should do less and be less, and looks likely to nudge it to do less and be less.

As a result, development experts and global economists have broadly criticized the pick. “I frankly view him as a bad candidate,” said Scott Morris of the Center on Global Development, the influential Washington think tank. “He has a track record, both in views that he’s expressed and policy as [Treasury] undersecretary, which is pretty clearly hostile to ambition in the World Bank.”

February 12, 2019

China's Economy Is Booming, But It's Still Borrowing Heavily From The World Bank (NPR)

From the article:

The World Bank's mission is to lift countries out of extreme poverty. Few would say China fits that description these days. It's technically eligible for World Bank loans. But as NPR's Jason Beaubien reports, some people question whether China really needs the money.

JASON BEAUBIEN, BYLINE: China has cash reserves of some $3 trillion, yet continues to borrow significant amounts of money each year from the World Bank. Under the bank's rules, once a nation's per capita income tops $7,000, they're supposed to get weaned off the World Bank's subsidized loans. China passed that threshold in 2016.

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BEAUBIEN: The World Bank has specific issues that it's trying to influence globally, and one of them is climate change.

SCOTT MORRIS: China's the world's largest polluter today, and the biggest single category of expenditures for the World Bank is in this area.

BEAUBIEN: That's Scott Morris, a senior fellow at the Center for Global Development and the lead author of a new report on World Bank lending to China. He found that 38 percent of loans to China over the last three years were focused on what the bank calls global public goods, issues that extend beyond China's borders such as climate change, smokestack emissions and other industrial pollution. The fear is that if the World Bank disengages, China will scale back some of these environmental efforts. Morris says China recently has also turned to the bank for money for a wide range of projects involving education, agriculture and roads. It borrowed $200 million for a port and shipping container logistics park on the Yangtze River. There was even a loan to support heritage-based sustainable tourism.

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