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Building a Better World Bank, Not a Bigger One

Montek Singh Ahluwalia is former deputy chairman of India’s Economic Planning Commission.
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Finance and development ministers from around the world, who are gathered in Washington this week, will consider whether the World Bank needs more resources -- a new infusion of capital to permit more lending and new contributions from traditional rich-country donors to help the poorest countries.

But a bigger World Bank is not necessarily a better one, and any consideration of new money for it or for the regionally based multilateral development banks demands a fundamental look at their mandates and operations in the face of new development challenges in today’s global landscape.

We were pleased to lead a distinguished panel of experts, including former finance and development officials from around the world, in a yearlong examination of the role of these banks in meeting this century’s challenges. The panel’s newly released report concludes that the world has changed dramatically, but the mandates and operations of the MDBs, as they are known, have not kept pace. 

Climate change is perhaps the most important challenge facing the world in the years ahead, and managing its ill effects requires steering more capital, especially global private capital, toward greener infrastructure investments. Similarly, the growing resistance to antibiotics and the possibility of fast-moving pandemics pose a huge risk to health and require new technologies and innovative ways of supporting new initiatives.

Helping the millions of refugees and people displaced by conflict in countries such as Syria and South Sudan is another major challenge requiring not just humanitarian assistance but investments in their futures through education and jobs -- the kind of work the MDBs have long supported in stable settings, but have no simple way to finance for displaced populations.

Multilateral development banks are rare in combining impressive technical and fiduciary capability with financial heft and international convening power. But history, habit and staff skills have wedded them largely to the traditional and well-developed instrument of the country-based loan, which for today’s climate and other transnational problems is an inflexible and often inappropriate instrument.

And with the next pandemic or the next wave of refugees, the MDBs as a group should no longer be hamstrung by debates over what constitutes a poor country; nor should they lose time to delayed donor conferences leading to publicly announced pledges that are rarely fully honored. To respond quickly and at an appropriate scale they need dedicated contingency funds and more innovative financing. But within the current MDB system these problems are currently addressed primarily through small ad-hoc special funds and one-time budgetary set asides.

We worry that this weekend’s discussions at the World Bank will focus narrowly on how to stretch the balance sheet to finance more lending -- with higher future loan “disbursements” being the measure of “success.” Instead, the case for expanding the World Bank’s scale of operations must come with a new vision for the MDB system as a whole and a new priority at the World Bank, the oldest and most global of all these institutions.

We propose that ministers, including those representing the newborn Asian Infrastructure Investment Bank and New Development Bank, consider clearer future mandates for the different banks. The aim would be to raise more resources, but also to tap the assets and capital resources they already have in new ways and deploy them more flexibly, undoing the rigid rules and institutional silos that bog them down in the face of urgent needs.

We urge shareholding governments to give the World Bank specific instructions to support research and deployment of new energy and health technologies, to foster the nascent “green bond” market, and to issue loans and guarantees on terms that encourage borrowers to take on the upfront costs of climate mitigation.

Environmental sustainability should be at the heart of what the World Bank does in the future. This may well require a scaling up of resources, but these should be linked with stronger performance under this new mandate. We also support an updated system of governance at the World Bank; developing countries, which now constitute over half the global economy, should be adequately represented in decisions about financing and implementing the sustainability priority.

For the regional banks we see an increase in their operations in support of infrastructure as crucial. They have a key role in closing the trillion-dollar financing gap between current investment levels and what developing countries need to build the framework for modern, diversified economies. The Paris climate agreement, now close to ratification by enough countries to become effective, envisages steering $100 billion a year toward “green” infrastructure projects that protect the planet (for example, mass-transit systems that take cars off the road), as well as the investments in education, agriculture and water that bolster climate resilience in developing countries.

Considerable ambition and fresh thinking are required to equip the multilateral banks for this century’s new development challenges. We believe world governments that control the MDB system are able to muster such ambition. Doing so will mark a critical step in safeguarding and further extending the benefits of development progress in this century.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the authors of this story:

Lawrence H. Summers at lawrence_summers@ksg.harvard.edu

To contact the editor responsible for this story:
Katy Roberts at kroberts29@bloomberg.net