G20 experts on World Bank reform kick off US meetings
1 min read . Updated: 16 Apr 2023, 10:43 PM IST
PremiumThe high-level group has assumed critical importance in the backdrop of an intensified discussion on the reform of institutions such as the World Bank, a core theme of both the spring meeting discussions as well as India’s G20 finance track meeting.
New Delhi: The G20 expert group on strengthening multilateral development banks (MDBs) has begun its work in the US capital amid intensified discussions on reforming the World Bank —a key agenda of India’s presidency of the grouping.
Experts led by former US treasury secretary Larry Summers and veteran Indian policymaker N.K. Singh began meetings last week on the margins of the Spring Meetings of the International Monetary Fund and the World Bank.
Singh told HT the group has held its first in-person internal meeting and also interacted with heads and top officials of a range of multilateral banks, besides engaging with other stakeholders.
They also met Union finance minister Nirmala Sitharaman, who is chairing the G20 finance track and took the lead in setting up the group, on Saturday.
The high-level group has assumed critical importance in the backdrop of an intensified discussion on the reform of institutions such as the World Bank, a core theme of both the spring meeting discussions as well as India’s G20 finance track meeting.
Sitharaman said on Friday India’s initiative was “very well appreciated" and that the G20 FMs and central bank governors had accepted the formation of the group.
Besides Summers and Singh as co-convenor, the group includes Singapore’s senior minister Tharman Shanmugarathnam, former director general of the South African national treasury Maria Ramos, former governor of the Central Bank of Brazil Arminio Fraga, London School of Economics academic Nicholas Stern, former World Bank chief economist Justin Yifu Lin, former World Bank vice president and current dean of the Fletcher School at Tufts University Rachel Kyte, and former executive secretary of the Economic Commission for Africa Vera Songwe.
The group’s objectives include preparing a road map for an updated MDB ecosystem for the 21st century in all its respects including “vision, incentive structure, operational approaches, and financial capacity" to ensure that such banks can finance both developmental and newer trans-boundary challenges such as climate.
Explaining the wider context, Singh said, “Multiple initiatives have taken place in tandem and they need to be taken full cognisance of."
The first of these initiatives is a roadmap prepared by the Bank’s executive directors, which was discussed by the Bank’s development committee last week. The report on the Bank’s evolution suggests reframing and expanding its mission, overhauling its operating model, and finding new ways to boost its financial capacity. But key decisions have been left for the annual meeting of the Fund and the Bank in Morocco in October.
The second is a French initiative announced by president Emanuel Macron. Paris is hosting a summit for a new global financial pact in June, with the aim of building a new contract between the global north and south to enable greater financing.
The G20 group will also taken into account the fact that the UAE is leading discussions in the run-up to the COP-28 on a “very large green pact that can be devoted to climate financing".
Beyond this, the group will also take into account two other past G20 initiatives. Under the German presidency, the group set up eminent persons group on the issue under the leadership of Tharman Shanmugarathmam in 2017 — the report was finally submitted during the period of the Argentinian presidency.
The second G20 initiative in this regard was the report under the Italian presidency on the capital adequacy framework, which has been considered by the World Bank in its own evolution road map and has been reflected in the G20 chair summary.
“This is the background and framework in which the high-level expert group has begun its work in its earnest," said Singh.
Substantive challenges
Among the core fundamental challenges for the group is finding ways to balance and reconcile the traditional mandate of the MDBs, especially the World Bank, with newer challenges.
“The basic twin objective of the World Bank has been eradicating extreme poverty and boosting shared prosperity. Reconciling this traditional mission with adequacy of financing for green is key. What are the base numbers? Unless there is a very substantial augmentation, there would be a shuffling around with the same finances. This challenge has to be confronted."
At a time when countries in regions such as sub-Saharan Africa are worried that extreme poverty has increased and per capita incomes have gone down, they have expectations that the twin traditional functions of the Bank should not become smaller — yet there are expectations of finding green finance. Resolving this contradiction will be a top priority for the group.
The second issue is concessional finance and the future of the International Development Association, which is the Bank’s arm to help the poorest countries through grants and low-interest loans.
Singh said, “The third issue is how much and in what manner can private capital be garnered. This is not a romantic notion. What guarantees will be required to getting substantial private finance?"
And the final issue will be around general capital increase. The Bank has spoken about the fact that its leveraging capability is high. With a $20 billion paid-in capital, it could provide finances of upto $800 billion. “If its leveraging capability is so high, why can’t there be a general capital increase? But this is embedded in geopolitics," acknowledged Singh. If there is an increase in capital increase in a manner that affects voting share on the board, it will bring alive the fault lines between those who, at the moment, exercise control over the Bank such as the United States, and those who will seek greater control, such as China. Finding a way to ensure capital increase without affecting the balance of power will be the yet another challenge for the group.
It is in this backdrop of contextual and fundamental challenges that two of the world’s most distinguished policymakers, Summers and Singh, have set out with the ambitious agenda of reforming global institutions in Washington DC.