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CGD in the News

April 4, 2019

David Malpass sails past doubts to secure World Bank presidency (Financial Times)

From the article:

David Malpass is poised to secure approval from the World Bank’s board as the next president of the Washington-based multilateral lender on Friday, after a low-profile campaign with no competition.

The comfortable run experienced by the 63-year-old former chief economist of Bear Stearns on the path to the World Bank presidency marks a victory for the Trump administration, which will now have an avenue to bring its America-first worldview to one of the top international economic institutions.

Mr. Malpass has prevailed despite concerns among officials in many countries about his well-documented skepticism of multilateralism, and doubts about his commitment to some of the World Bank’s main goals, particularly combating climate change. 

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Mr. Malpass has laid out a narrower vision for the World Bank, saying it should be more exclusively focused on providing assistance to the poorest countries. He consistently warned that multilateralism had gone “too far” and international economic co-operation had become sprawling and ineffective.

“The timing is tough, because it’s a moment when the World Bank needs to do more, and have a leader with a big vision, bringing it into the 21st century,” said Nancy Birdsall, president emeritus of the Center for Global Development.

Mr. Malpass is expected to take office as early as next week, in time for the spring meetings of the International Monetary Fund and the World Bank, giving him the opportunity to make a high-profile debut.

His early actions will be closely scrutinised for any signs of tensions with China. In congressional testimony as recently as November, Mr. Malpass had warned that the multilateral development banks risked being captured by Beijing’s “geopolitical” influence.

 

April 1, 2019

U.S. officials said aid to El Salvador helped slow migration. Now Trump is canceling it. (Washington Post)

From the article:

MEXICO CITY — Until last week, U.S. officials held up El Salvador as proof that foreign aid could help curb migration. The partnership between the two countries drew praise from diplomats, members of Congress and even America’s top border enforcement official.

Then President Trump announced that he was withdrawing economic assistance to the Central American country and its neighbors Guatemala and Honduras.

“They haven’t done a thing for us,” the president said Friday.

The claim baffled development officials and Salvadorans, who saw the country’s cooperation with the United States on security, civil society and economic development as a success story, inasmuch as it achieved the Trump administration’s goal of slowing the flow of migrants heading north to the United States.

In the past three years, both El Salvador’s homicide rate and migration flows have declined sharply. More than 72,000 Salvadorans were apprehended crossing the U.S. border in 2016. By 2018, the number had plummeted by more than half, to fewer than 32,000.

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Analysts caution against attributing reductions in migration solely to U.S. aid. They say changes in migration are likely the result of a variety of causes, many of them beyond the control of governments.

“There has been no serious look at the historical relationship between development and migration that would convince anyone that economic development of any form across the developing world leads to sudden decreases in migration,” said Michael Clemens, co-director of migration at the Center for Global Development in Washington. “Demographic forces are so much ­stronger.”

Over the last decade, the Salvadoran population aged out of the so-called youth bulge, when a disproportionate number were ages 15 to 29 — the period when people are most likely to migrate.

Guatemala and Honduras are several years behind El Salvador demographically, which might help explain discrepancies in their migration rates.

Migration from the three nations of Central America’s Northern Triangle rose rapidly from 2012 to 2016, much of it undocumented minors fleeing growing gang violence.

According to the Center for Global Development, more than 8 percent of 17-year-olds from El Salvador, Guatemala and Honduras arrived at the U.S. border from 2011 through 2016. In a separate study linking violence to migration, it found that for every 10 additional murders in those three countries, six more children migrated to the United States.

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April 1, 2019

Trump Laid a Trap on Immigration—And Only Beto Sees It (The Atlantic)

From the article:

Beto O’Rourke isn’t known for his wonkish heft. But in his formal announcement for president on Sunday, the former Texas congressman offered one of the most important policy proposals of the nascent presidential campaign: He argued that to solve America’s problems at the border, America’s leaders must “help people in Central America where they are.” In so doing, he began laying a foundation to effectively rebut Donald Trump on his signature issue: immigration.

Every major Democratic presidential candidate decries Trump’s actions at the border. In her announcement speech, Kamala Harris called his policy of putting “children in cages” a “human-rights abuse,” and his proposed border wall a “medieval vanity project.” In hers, Elizabeth Warren said that under Trump, America’s “immigration system … lacks a conscience.” Amy Klobuchar used her announcement to demand “comprehensive immigration reform.” In his, Bernie Sanders called for a path to citizenship for undocumented immigrants already in the United States and “a humane border policy for those who seek asylum.”

O’Rourke’s competitors are right to demand a fairer and more humane system for evaluating asylum claims. But an improved asylum system won’t reduce the number of people fleeing violence in Guatemala, Honduras, and El Salvador—Central America’s “Northern Triangle.” To the contrary, the better chance migrants have of gaining asylum, the more likely they are to seek it.

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American aid can reduce this violence and the migration it creates. In 2014, the Latin American Public Opinion Project at Vanderbilt University released a study of a U.S. Agency for International Development program aimed at improving public safety in El Salvador, Guatemala, Honduras, and Panama. USAID funded job training and community policing, paid to install streetlights and remove graffiti, and according to the Vanderbilt researchers, “51 percent fewer surveyed residents reported being aware of murders in their neighborhoods” than “we would expect to see without USAID interventions.”

Michael Clemens, co-director of migration, displacement, and humanitarian policy at the Center for Global Development, then analyzed U.S. government statistics on the 179,000 unaccompanied children from the Northern Triangle picked up by U.S. Customs and Border Protection agents over a six-year period. Comparing murder rates in a given Salvadoran, Honduran, or Guatemalan town with the rates of apprehended migrant children, he found that “a decline of 10 homicides in an average municipality of this region caused six fewer children from there to be apprehended at the U.S. border.” His ultimate conclusion: “Projects financed by U.S. aid have been shown to reduce violence in the region, and that violence is a major driver of illegal migration.”

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March 31, 2019

Trump Calls for Ending Aid to El Salvador, Guatemala, Honduras Over Migrants (Voice of America)

From the article:

The Trump administration on Sunday demanded that Mexico and three Central American countries curb the surge of thousands of undocumented migrants heading to the United States, noting that the homeland security chief for former President Barack Obama agrees there is an immigration crisis at the southern U.S. border.

"We need your help," acting White House chief of staff Mick Mulvaney told Mexico, Guatemala, Honduras and El Salvador in an interview on ABC News. He said Mexico needs to solidify its southern border with Guatemala to prevent the caravans from heading north through Mexico to the U.S. and that the three Central American counties need to curb migrants from leaving their countries.

He left open the distinct possibility that President Donald Trump would close the U.S. border with Mexico in the coming days, even as he says he intends to cut off about $500 million in U.S. aid to the three Northern Triangle countries.

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'Reckless' policy?

Congressional action would be needed to cut off aid to the three countries. New Jersey Senator Bob Menendez, the top Democrat on the Senate Foreign Relations Committee, called Trump's order a "reckless announcement" and urged Democrats and Republicans alike to reject it.

Rep. Joaquin Castro, a Texas Democrat and chairman of the Hispanic Caucus, warned in a statement released Saturday that cutting off aid will further destabilize the Northern Triangle countries.

"By cutting off desperately needed aid, the administration will deprive El Salvador, Guatemala and Honduras of critical funds that help stabilize these countries by curbing migration push factors such as violence, gangs, poverty and insecurity. Ultimately, this short-sighted and flawed decision lays the groundwork for the humanitarian crisis at our border to escalate further,” he said.

Michael Clemens, a senior fellow at The Center for Global Development, says the administration’s strategy to shape migration through aid needs to be done right.

“If what the United States wants to do is prevent irregular child migration in a way that works and is cost-effective, it should not do what it has traditionally done — spend 10 times as much on border enforcement trying to keep child migrants out as it spends on security assistance to the region," he said. "In fact, smartly packaged security assistance" is the only thing that has been "shown to reduce violence effectively and cost effectively.”

 

March 27, 2019

How the U.S.-China trade war could damage the Amazon rainforest (PBS News Hour)

From the article:

The trade battle between the U.S. and China could exacerbate deforestation in the Amazon, an analysis published Wednesday in Nature warns.

Last year, the Trump administration imposed tariffs on $250 billion worth of Chinese goods being imported to the U.S. China retaliated with a set of its own tariffs, including a 25 percent import tax on U.S. soybeans. To avoid paying higher prices, China cut soybean purchases from the U.S. by 90 percent and bumped up imports from Brazil to fill the gap.

Now, Brazil is responding by increasing soybean production, which means farmers might clear more land in the rainforest to make room for new crops.

“Massive deforestation of the Amazon over what’s already happening will have profound impacts on global attempts to mitigate climate change and protect biodiversity,” the report states.

If the tariffs continue, the researchers behind the report say, increased soybean production could cause up to 32 million acres of deforestation in the Amazon over the next several years — more land than in New York state. Aside from the ecological devastation, Brazil’s burgeoning soy fields could supplant American farmers and their exports. The researchers, from Germany and the UK, say major steps such as eliminating the tariffs as soon as possible must be swiftly taken to stop irreversible damage

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Is ending the trade battle the solution?

The U.S. and China are taking steps to reduce trade tensions. Earlier this year, President Donald Trump and Chinese President Xi Jinping reached a truce as their countries continue negotiations. As a result, China bought a large supply of soybeans in December, putting a damper on Brazil’s soybean exports.

Even if the tariffs ended tomorrow, the damage could already be done.

“A lot of trade is built on trust and networks,” Fuchs told the NewsHour. “Once this is damaged or even destroyed, I wonder if the Chinese wouldn’t learn a lesson from that in the future to diversify their supplier,” relying less heavily on the U.S. to meet its demand.

And eliminating tariffs will not halt the growing demand for soybeans throughout the world.

As the economies of developing nations grow, demand for meat, and the soybeans that go into animal feed, are likely to increase — putting further pressure on Brazil to expand its soybean production, anyway.

“There were already concerns about deforestation in the Amazon before the trade war, and I definitely agree that makes things worse, but there is still the underlying problem that needs to be addressed,” said Kimberly Elliott, a visiting fellow at the Center for Global development who focuses on trade policy and is not affiliated with the research team.

The main way to address it: reduce meat consumption. That is a heavy lift for many nations, including both Brazil and the U.S., which have some of the highest meat consumptions per capita in the world.

 

March 21, 2019

IMF loan conditions detrimental to local policies in poor countries, says report

From the article:

Structural reforms enforced by the IMF prevented state bureaucrats from implementing essential policies in service such as health, education, and national security, according to a report by social scientists from universities including Oxford and Cambridge.

The IMF rejected the findings, pointing to other research that found the implementation of structural reform conditions had in fact helped spur public investment.

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Sanjeev Gupta, a senior policy fellow at the Centre for Global Development thinktank and a former IMF official, recently published research based on conditions covering 115 countries between 1992 and 2016. It found that conditions relating to structural public financial management, such as on budget execution and control, had proven to be effective in boosting the long-term level of education, health and public investment expenditures.

Implementation of structural conditionality helped spur public investment by 10%-19%, the research found. “In fact, the conclusion is that it helps countries build capacity over time and, for somebody who has spent 30 years in the business, I have seen the capacity of countries improving,” he said.

Gupta, who was deputy director of fiscal affairs at the IMF, said he did not find the AJS paper’s conclusions “tenable” and that he had written rebuttals to similar papers the same authors had produced recently.

“You cannot have stabilization without structural reform. You don’t just say ‘cut spending and raise revenue’ and that’s it. You have to go deeper into the analysis and see what policies to implement,” he said.

“All stakeholders, whether countries or financial institutions, have to ensure that critical spending, whether social spending or public investment, is taken care of and doesn’t get slashed.”

 

March 19, 2019

Development finance institutions grapple with their growing role (Devex)

From the article:

Small agencies that work alone, siloed off from the rest of a country’s development work: That’s how development finance institutions might have been described just a decade ago. But DFIs have gained prominence as the role of the private sector has been accepted and because their work can be put in direct service of meeting the Sustainable Development Goals.

As the paradigm shifted from a focus on social service support and grant-based official development assistance to one more driven by private sector development, countries have turned to development finance institutions to provide solutions to help create jobs, spur economic development, and reduce poverty. As a result, the number of institutions has proliferated.

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Taking risks

In the past several years, a number of DFIs moved to invest more in least developed or low-income countries.

Deals in LDCs are difficult and complex. They require taking more financial risk and more effort and creativity, said Colin Buckley, chief operating officer at CDC.

Historically, DFIs have been hesitant to invest in fragile states and risky settings where the investment had less than an 80 percent probability of success, even if it had the capacity for transformative impact, Buckley said.

“One thing DFIs need to be more comfortable doing is rolling the dice for transformative impact,” he said.

DFIs will not, and cannot, solely invest in the poorest, riskiest places. In an effort to remain profitable and balance their portfolios, they will continue to make some investments that are deemed safer, even as they look to invest more in low-income countries.

But some experts believe that DFIs should be taking more risk and doing more to crowd capital into higher risk markets where private finance is especially scarce.  

“Some DFIs — I’d pick on IFC [the International Finance Corp.] for sure here — are mostly not in high-risk markets and not very engaged in high-risk sectors and are mostly doing safe projects,” said Todd Moss, the executive director at the Energy for Growth Hub, a spin-off from the Center for Global Development, where he is also a visiting fellow.

Part of the problem has to do with incentives: At some DFIs, investment teams are rewarded based on the amount of money invested, rather than on where it is invested or what its impact will be. There is also often pressure on the financial side, especially for DFIs that operate like commercial banks and are trying to maintain AA or AAA credit ratings.

“The scale and risk issues mean for these agencies to succeed, they need to create internal incentives for people to take risk and subsidize upfront costs,” Moss said.

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As a result, in some industries, DFIs appear to be preventing a natural progression to more commercial capital over time, keeping them locked in as sectors dependent on concessional financing, he said.

Not all DFIs are investing in that way, the investor noted. He pointed to a recent Overseas Private Investment Corp. deal where OPIC made part of its investment junior debt, a move that would allow the fund to raise more commercial sources of capital, which would need to be senior debt.

“I dont think they’re chasing out private capital very often. The bigger problem is sometimes crowding in other DFIs rather than truly private capital,” Moss said, adding that it could be an issue of immature markets that would change over time.

Some, including Andreasen, said that they don’t see competition as a problem, and instead often see DFIs working together. About one-third of individual investments that the European bilateral DFIs make are done alongside other European DFIs, he said.

“It’s fine to have debate and scrutiny in this respect, but I don’t see a lot of specific evidence,” Andreasen said.

One place DFIs are playing a critical role, and are working together, is in financing local banks in Africa in the wake of restrictive regulations around risk that have led many commercial banks to pull out, he said.

Buckley said DFIs haven’t been very good at coordination with one another or with aid agencies. Often, transformative investments need regulatory or institutional reform — and that is where DFIs should work more closely with aid agencies to address some of those challenges.

“I think people should demand more cooperation as DFIs grow in prominence and capital,” Buckley said.

Transparency and measurement

As more funds are funneled through DFI investment mechanisms, demand is growing for better measurement and improved transparency.

“As public agencies, they should be as transparent as possible — they don’t need to release every detail of every project, but they should release information about activities ... as maximally as possible,” Moss said.

A DFI should release all information unless there is a commercial reason not to, he said. It should be transparent about systems for evaluating development impact during and after it makes investments, and the data should be made available in easily accessible formats.

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March 15, 2019

David Malpass unchallenged to be next World Bank president (Devex)

From the article:

LONDON — The legitimacy of the World Bank’s presidential appointment process is under renewed scrutiny after U.S. President Donald Trump’s pick, David Malpass, emerged as the only candidate to succeed Jim Kim.

Nominations for the position closed on Thursday, and the World Bank confirmed in a press release that Malpass, currently a U.S. Department of Treasury official and a former investment banker, was the only candidate nominated for the job.

Civil society groups and development experts reacted with dismay. Many had hoped the historic “gentleman’s agreement,” which sees the United States appoint the World Bank chief and Europe nominate the head of the International Monetary Fund, would face a genuine challenge this time around. With only one candidate, it is hard for the bank’s directors to argue credibly that the process was merit-based and transparent, they say.

“It is very depressing that the World Bank board has failed to live up to the repeated commitments of its members to an open, merit-based process for key international appointments,” said Owen Barder, vice president at the Center for Global Development.

“Going back to choosing the World Bank president by coronation rather than a fair contest is a setback for an effective, rules-based multilateral system. This is another nail in the coffin for the World Bank,” he said.

As Malpass made his rounds to meet with World Bank shareholders, he secured commitments of support from countries including Australia and South Korea before the nomination deadline closed, begging questions about whether they were ever open to challenging the Trump administration’s pick by considering alternative candidates.

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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.”

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