World Bank presidential election: sign of a broken economic system
Reform needed for a greater role for developing countries
Jim Kim’s resignation as president of the World Bank came as a surprise and the race to replace him is on, with Donald Trump's announcement of David Malpass as the US candidate. Yet the electoral process highlights bigger issues about the global economic system and the limited role developing countries play within institutions designed to support them.
The question of who is at the helm of the World Bank matters. As a multilateral organisation with a mission to end extreme poverty and promote shared prosperity, it shapes outcomes for the future of people and planet.
For example, if we are to avoid catastrophic climate change, $500bn is needed per year by 2050. Last year the Executive Board of the World Bank decided to phase out funding for fossil fuels for energy access.
The Board is also discussing a new set of tax due diligence to ensure that companies it lends to don’t dodge taxes in developing countries (costing developing countries more than $200 billion, according to the IMF).
The World Bank gives policy advice on subjects ranging from labour markets and infrastructure to tax and energy – yet when it comes to electing a president to oversee this important work, 50% of the votes belong to developed nations representing only 12% of the world’s population (this includes the US, European countries, Australia, Canada and New Zealand).
This is simply not fair. Developing countries should have a far greater say setting the policies that govern international development. Furthermore, if an institution is run predominantly by developed nations, its policy advice may not reflect the needs of developing countries. Instead it risks interests from developed country investors and enterprises creeping into the policy choices it proposes.
The politics of electing a president
Traditionally the role of World Bank President has been filled by a US candidate, meaning that Trump and his nominee currently hold many of the cards.
To date, the US candidate has always been successfully elected to the post. This is largely thanks to 50% of the votes belonging to the developed countries mentioned above, but also a long-held “gentlemen’s agreement” where European members vote for the US candidate in return for American support of a European candidate at the IMF.
While European leaders might not like Malpass – a steadfast critic of multilateralism – it’s likely that the fear of losing their side of the historical bargain will still mean that they vote for him. Especially as Christine Lagarde’s term at the head of the IMF is soon ending.
Developing countries did argue for a merit-based selection process when Jim Kim was nominated, and may well put forward a nominee this time around, but their nominee is unlikely to get the support of the majority. They would need all the Europeans members to ally with them.
The institution’s reputation is likely to suffer as a result of another selection process not considering the merits of developing country candidates, as argued by civil society groups, particularly if Malpass is elected.
Learning from the UN system
In the international sphere, the United Nations offers an example of a more egalitarian approach to the governance of a global institution. It was created to promote human rights, peace and development at the end of the Second World War, and it has shown moral leadership in climate change, health and development issues. At the UN, each of the 193 members has an equal vote in the General Assembly, and for developing countries it is the main avenue for foreign policy.
The United Nations would be a better place to find consensus on the burning issues of our day, from climate change to inequality to taxation.
It has led the way in tackling climate change in supporting both scientific recommendations, and establishing the crucial principle of ‘common but differentiated responsibilities’ (CBDR). CBDR means that developed countries take a greater share of the responsibility in financing the cutting of carbon emissions.
Also – unlike in the OECD, the IMF or the World Bank – civil society is formally recognised as a partner at the UN, and can take part in negotiations – not least due to the UN being based on the Universal Declaration of Human Rights, guaranteeing participation.
We should consider reforming systems of economic governance so that they look more like UN – especially the Financing for Development (FFD) process. So when FFD discussions tackle tax, debt, private financing and aid, they should be based on a UN-led analytical vision of what type of financing is most likely to achieve the Sustainable Development Goals (SDGs). They should then consider the CBDRs of all countries in mobilising the financing needed to reach the SDGs.
It is unacceptable that institutions like the World Bank – where Europeans and the US, along with a few developed country allies, hold a majority of votes – can dominate decisions on the global governance of tax, debt and financial markets. It’s important that we shift power, and recognise developing countries as equal in making such far-reaching decisions.
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