World Bank's formula to regain relevance

Washington: In the fall of 2016, Jim Yong Kim, the president of the World Bank, sat down with some of the most powerful figures in the global economy.

Hosted by Christine Lagarde, the head of the International Monetary Fund (IMF), their discussion focused on financial trouble spots around the globe. There was scant talk about poverty, which the World Bank has committed to eradicate. And as such, there was no cause for Kim to join the discussion in a meaningful way.

"I sat there and thought, 'we are completely irrelevant to the majority of these countries'," Kim recalled. "The IMF is a systemically important financial institution. But we are seen as just a bunch of do-gooders."

The World Bank, once a powerhouse of global finance, is searching for relevance. Kim's unusual solution: embrace Wall Street.

For decades, the World Bank followed a simple formula. Developed-world governments that are the bank's members provided the bulk of its money, which was used to make loans to developing nations for infrastructure projects and the like.

But that model is under strain. Some 1.3 billion people still live in extreme poverty, and the bank's war chest is dwarfed by the funds pouring into developing countries through financial markets. Perhaps most important, the World Bank's biggest benefactor and largest shareholder - the US - has become its most trenchant critic.

Kim's mission is to revitalise the World Bank by increasing its firepower and winning over the US. To do so, he is fundamentally, and controversially, changing how the bank operates.

Instead of relying solely on contributions from reluctant donor governments, he is pushing private investors - sovereign wealth funds, private equity firms and insurance companies - to pony up trillions of dollars for projects in Indonesia, Zambia, India and elsewhere. His pitch: They can reap rich returns by putting their money to work alongside the World Bank.

As well as visiting villages, Kim tours financial capitals, hobnobbing with chief executives, bankers and fund managers. Interest rate swaps, internal rates of return, first-loss debt instruments: the jargon rolls off his tongue with the fluency of an investment banker.

In December, at an environmental summit in Paris, he used the phrase "deals on the table" seven times in an eight-minute speech. During the address he promoted four World Bank projects that would use private-sector capital.

World Bank traditionalists are squirming.

"It is not enough to be just another private equity fund," said Scott Morris, a former US Treasury official who worked with the World Bank, now at the Center for Global Development.

The World Bank was founded at the end of World War II, part of an effort to remake the international financial system in a free-market mould.

Through subsidised loans, the goal was to stimulate recovery in ravaged Europe and, later, economic development in the world's poorer parts.

The dams, pipelines and roads that these loans built spurred progress. They also stirred controversy when the bank was criticised for environmental destruction and supporting despots.

Along the way, an entrenched bureaucracy of economists and development experts took shape. Resistant to change, they sustain and defend the bank's original mission: funnelling loans to emerging economies.

Unlike past World Bank presidents, who hailed from politics and finance, Kim's background - as a public health crusader and a vocal critic of the bank for imposing heavy-handed solutions on poor countries - made him acutely aware of the institution's frailties. After taking office he immediately embarked on a reform plan.

At the root of this effort is his dream to persuade the private sector to help the bank achieve its goal of ending extreme poverty by 2030.

Some critics at the bank think Kim has become too dazzled by bold faced names and billionaires. He golfs with Michael Bloomberg and swaps books with President Emmanuel Macron of France, most recently sending him a copy of Orientalism, Edward Said's critique of western attitudes towards the Middle East and Asia.

Kim's turn at the Paris environmental summit in December was an opportunity to trumpet the potential of his reimagined institution.

The day before, Kim had been in Zurich with Tidjane Thiam, chief executive of Credit Suisse, pitching clients on a new emerging market fund. And after wall-to-wall meetings at the Paris conference, he planned to fly to Tokyo to sell investors on the World Bank's latest financial innovations.

His voice was hoarse; hectic travel and speechmaking had taken their toll. But now, with Macron and 50 other heads of state, not to mention Arnold Schwarzenegger, Sean Penn and Bill Gates, watching him closely, it was showtime.

Kim strode onstage and started talking deals.

There was a bid to attract $2 billion in private capital to protect coastal shores in West Africa; a $4-billion scheme to back geothermal energy in Indonesia; the establishment of a global investment bank to spur environmentally friendly investments in cities; and a big bet on electric cars in India.

All would be blessed by the bank. But their ultimate success would hinge on how much money the private sector would kick in.

Kim concluded by announcing that the bank would no longer back oil and gas drilling projects.

A roar of applause filled the auditorium. Kim grinned.

For the moment, at least, the World Bank was relevant again.

New York Times News Service