URevamping the role of the World Bank could offer the Biden administration its biggest chance for a major foreign policy success story. The World Bank should indeed be able to play a crucial role in responding to crises, helping post-conflict reconstruction and, more importantly, supporting the huge investments needed for sustainable and healthy global development. However, this is currently not the case.
Economist Charles Kenny of Center for Global Development (CGD)showed that, despite the current polycrisis (looming global recession, high interest rates, strong dollar shaking many economies, rising food and energy prices, ongoing pandemic and accelerating climate change), the amount of World Bank lending has not even kept pace with economic growth since 2017. It even decreased in 2021.
This should be unacceptable to the United States and other country shareholders of the bank. Given the magnitude of the global challenges of the next decade, we should speak in trillions, not trillions of dollars! If war is too important to be left to generals, funding for global survival is too important to be left to international bureaucrats.
Paradigm shift
Four steps are necessary to reform the World Bank.
First, the bank must broaden its mission to sustainability and global public goods, in addition to poverty reduction. There can be no lasting success in poverty reduction without a paradigm shift towards sustainable development; there can be no global green transition without progress in poverty reduction. But expanding the mission is meaningless without action: the bank’s shareholders insist on a target of $2 trillion in lending over the decade 2024-2034.
Second, the bank needs to overhaul its financial model to include greater leverage: reconsider lending instruments, including their time horizon and degree of conditionality; combine the bank’s co-financing efforts with those of the International Finance Corporation (the private sector lending arm of the World Bank) and the Multilateral Investment Guarantee Agency, to stimulate private investment. Special drawing rights (SDRs, the reserve assets of the International Monetary Fund, IMF) should also be used as capital for development. So far, despite all the hype, the new DTS allocations have had no visible effect.
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