WORLD BANK’S DEMOCRATIZATION: WHAT’S YOUR TAKE?
Erle Frayne D. Argonza
Democratization has been among the core issues that have been brewing in the World Bank and its sister agency the International Monetary Fund or IMF. These banks were for a long time dominated by the G7 wealthiest countries, whose chief exec posts also came from the G7 bank circles: American for the World Bank, French for IMF.
Behaving for so many decades as footstools of financial cartels, both banks’ fundamental legitimacy is being questioned across various quarters. Compounding the legitimacy question is the expanding economic power of emerging markets that will overtake the G7 one after the other from this year till 2025.
Emerging markets’ power is changing the rugs down under our feet, changing the rules of the game, and revealing what countries are the breadwinners of the global economy today. Both the World Bank and IMF are perceived as bad banks that are anti-moral in their dealings, clobbering sovereign states just because they are poor or have lost the leverage to call it even in the negotiating tables (e.g. Greece, Ireland).
So what’s your take of the so-called democratization of the World Bank?
[Philippines, 09 March 2012]
Caroline Anstey on the World Bank’s drive to ‘democratize development’
After serving as World Bank chief of staff and vice president for external affairs, Caroline Anstey assumed one of three managing director positions at the agency on Sept. 19, 2011. Photo by: European Union
The World Bank is at a crossroad — and that goes beyond the matter of leadership.
In the coming weeks, a successor will be found for outgoing President Robert Zoellick, under whose leadership the bank has increased its transparency and focus on results, boosted its funding and anti-corruption drive, and elevated a record number of women and developing country nationals to senior posts.
Caroline Anstey was among those who moved up the bank’s hierarchy under Zoellick. After serving as World Bank chief of staff and vice president for external affairs, she assumed one of three managing director positions at the agency on Sept. 19, 2011. The former BBC producer is in charge of the bank’s modernization drive and has special oversight on gender issues.
The World Bank is not the “only game in town” anymore, Anstey said in a recent conversation with Devex, acknowledging the emergence of new donors in the public, private and nonprofit realms. But it remains an “important catalyst for investment” from the private sector and other sources.
“And unlike many of the so-called vertical funds, which may support a single sector like education or health,” she said, “the bank’s support isn’t earmarked so countries can match it more closely to their own development priorities.”
Infrastructure remains the bank’s “core business,” accounting for 40 percent of total bank assistance, according to Anstey; investment in agriculture and safety nets has risen in recent years.
So what does the future hold for the World Bank?
Developing countries will play a larger role, Anstey said, and the bank will be more decentralized and “location-neutral,” to connect better with clients. Eventually, there’ll be less lending to middle-income countries and a greater focus on open knowledge — what bank officials call “democratizing development.” The World Bank, as Anstey sees it, will be a “global connector and development collective.”
We caught up with Anstey days before Zoellick publicly announced he would step down at the end of his first term on June 30.
Can the bank still ensure that the International Development Association can deliver aid to the poorest countries in the face of planned scale backs to its budget?
Well, in December 2010, we raised a record IDA appropriation of $49 billion — the largest in our history — and this despite the financial difficulties many of our donor countries are experiencing. So, there’s been no contraction in funding yet.
But, increasingly, development funding is going to rely on a new compact between traditional and new donors. And many of those new donors are emerging markets which have benefited from bank support in the past and now want to give back. So, for the last IDA replenishment, China, for example, prepaid $2 billion of IDA monies back into the fund, allowing others to benefit. And we also had a number of countries join which had never donated before. We are also looking at ways that we can move IDA to greater self-sufficiency, so we are not so dependent on triennial replenishments.
All that said, IDA continues to produce impressive results: 13 million lives saved over the last 10 years, 310 million children immunized, access to water and sanitation for 177 million people, nutritional supplements provided to 98 million children, and better education for more than 100 million children each year.
How, in your view, is investment by BRIC countries [Brazil, Russia, India and China] in Africa and Latin America changing the nature of development finance?
It’s broadening it, and broadening options for developing countries, and that’s healthy. The worst thing development agencies or donor countries could do is say to these countries, “We only want you to take our finance and our investment,” and, “Oops, sorry, but our economies are in a mess now, so we really need to pull some of our investments out; but just wait around ‘till we’re back on our feet.”
But at the same time, it is important that investment is in the interests of the country and the local people. So, for investment and purchases of land for agriculture, for example, we’ve advocated for guidelines around so-called “land grabs,” so that local peoples’ needs are met. We’ve encouraged countries to sign up to the Extractive Industries Transparency Initiative and the private sector to subscribe to the Equator Principles to help regulate and make investment more transparent.
At the same time, there is a lot for developing countries to learn and gain from each other [through] what have come to be called South-South interactions: Indian railways in Africa, Brazil’s conditional cash transfer system in the Middle East, Columbia’s approach to urban transport — now exported to many parts of the world: The bank can help connect and catalyze that learning and those interactions.
So, yes, we should work to help ensure that local peoples get the safeguards they need. But let’s not just condemn this investment.
Are you concerned that the bank will find it harder to set norms and standards in development finance when countries can go to other sources that may not include social and environmental safeguards?
I think I answered that above. But perhaps I can expand a little: We have now launched a new lending instrument — only the third in the bank’s history — called P4R, or Program for Results. It joins investment lending and budget support as the main vehicles for bank support.
But the key thing about P4R is that disbursement is linked to results — so no money flows until the development results have been verified. But equally important, P4R, is also about strengthening countries’ own systems for environmental safeguards, procurement, fiduciary standards. We will help countries build those systems and assess them.
This means bank lending will no longer just be about the money we lend to individual projects, but about the systems we help build with our country partners. And this can help raise standards and safeguards, and boost transparency.
Is the World Bank now just another agency? And what must it do to retain the ideal of a global cooperative?
Well, you would expect me to say no, and I won’t surprise you. Owned by 187 countries, our workforce includes people from 170 different nationalities. Working out of more than 150 offices worldwide, with 41 percent of our staff now based in country offices, I don’t think we are just another agency.
For starters, we are global — many agencies or regional development banks aren’t, and this hampers their ability to cross-fertilize development experience. And second, we don’t earmark funds, so countries can work with us to design their priorities and we don’t have to say, “Well sorry, we can only lend for the health sector,” or, “We can only lend if all the procurement goes to a European firm, or if Chinese workers do the construction.”
And we are a cooperative in other ways. There are very few votes on our board; projects and programs are supported through a process of consensus across our 187 members. We tend not to split along traditional political lines, such as is more common at the U.N., for example. And when we need to raise capital, as we did recently, we see subscriptions across our membership.
Doesn’t climate change present the bank with an ideal opportunity to become a global cooperative of countries causing warming and those impacted by that?
Yes, I think the bank can play a key role. Not on the negotiations — that’s the province of the UNFCCC [United Nations Framework Convention on Climate Change] — but on climate finance. While the international community is talking about creating a green fund, we already have one up and running.
Our Climate Investment Funds — some $6.5 billion — are leveraging investments by 8-to-1 and, as a result, generating more than $40 billion in clean investment. That’s the leverage story I was talking about earlier. And that money has gone to support renewables, solar investments, green transportation and other investments.
We can do much more of this and in supporting green growth. Where the cooperative comes into play is interesting. Our developing country shareholders don’t want climate support to come at the expense of development finance; they are also suspicious of a northern agenda that wants them to get right out of coal even though coal may be their only resource. Donors, like Europe and the U.S., want investment in renewables; some want restrictions on coal, but they also want investments in green growth.
There is room here for the bank to help bring all sides together. An environment agenda can get very political; a development agenda which incorporates green growth can be an easier forum to reach practical consensus.
Does the bank need to be recapitalized to ensure it has the resources to deliver on its agenda?
We literally just had the first general capital increase in 20 years, so the answer is no, not now. But obviously, we pay close attention to our capital base, lending ability and pricing.
Many contributors have talked about the need for major governance reforms, covering both the leadership and quota share. Do you see that as an essential element?
We just had a major voice reform of voting power at our board. This took developing countries to a 47 percent voting share, with a commitment to move to parity over time. Voice reforms will come up again in three years. We also just added an extra seat at our board for Africa.
One question that has been discussed is whether voting power should be linked in some way to IDA contributions, and how — if you reach 50-50 for developed and developing countries — you manage if developing countries become developed. Would you have to keep tinkering with the percentages?
I do see some possible changes: At the moment, Europe has eight out of 25 seats at the board. I think that could be consolidated into a single European seat. Last year, the board approved a new process for selection of the president. That’s the prerogative of the shareholders. They, not management, decide.
That said, over time, I do think you will and should see an opening up of both the bank and the fund to leaders from across the world, especially developing countries. But let’s remember, too, that leadership is also about the ideas that the senior management team builds upon. Significantly, we’ve just had the first ever bank chief economist from a developing country: Justin Lin from China. That’s not only a healthy development, but it’s appropriate given changing economic weights in the world.
Does the bank’s future lie as a crisis response agency, a development bank or a financial institution?
I don’t think you can put these in three tidy boxes. That’s much too cut and dried. If the last few years have shown anything, it is that the financial system has been linked to crisis. And development is also about insulating economies from financial and other crises.
Indeed, increasingly, development is about managing volatility. So no development bank is going to say, “We only do crises,” or, “We do development but we won’t lend money.”
Where the bank will go increasingly is into the business of development solutions rather than plain vanilla lending. So, take some of the more interesting work we are doing: crop and weather insurance, regional insurance against hurricanes and earthquakes, exploring local currency bond markets, early warning disaster management systems, solar-driven urban transport systems.
Personally, I think the most interesting work we are doing, and a large part of the bank’s future, is in “democratizing development,” taking our knowledge, data, projects and putting them all online — in real time — and developing systems where citizens and project beneficiaries can not only comment on project success, but can participate in their own development.
This is already happening. The penetration of mobile phones in Africa means SMS messaging systems can begin to collect citizen feedback: “The textbooks didn’t arrive,” “The children aren’t being immunized,” “The road is crumbling from poor construction and corruption.”
But even more than that, transparent and accountable development can tap new development ideas and solutions. And transparent government can help keep a check on corruption and make for better policy. So, the bank is now working with governments to open up their own data, draft freedom of information legislation, make budgets and procurement transparent.
That’s a very different bank, doing very different things from 1944. It’s also a bank where 50 percent of senior management positions are held by women. Again, very different from 1944.
Read more:
- After Zoellick, World Bank faces uncertain future
- World Bank President Robert Zoellick announces plans to step down
- Does it matter who runs the World Bank?
- The next World Bank president: A White House stuck between promises and political realities
- Robert Zoellick on the ‘Democratization of Development’
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