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Kim at the Bank

What the selection of a non-Wall Street,non-DC academic means

Written by Sanjaya Baru |
April 19, 2012 3:07:53 am

What the selection of a non-Wall Street,non-DC academic means

The World Bank is a shareholder-driven organisation and,as in all such organisations,the majority of shareholders would want a manager of their liking at the top. So no one ought to have been surprised by the desire of the United States,along with other major shareholders,to get a CEO of its choice — the Korea-born American public health academic and activist Jim Yong Kim — to head the Bank.

When a Frenchman,Dominique Strauss Kahn,had to quit the International Monetary Fund in ignominy,the Fund’s dominant shareholders replaced him with a Frenchwoman! The dominant shareholders at the Bank and the Fund are the victors of World War II and they have ensured that the management of the two institutions remains firmly in their hands.

While there has been considerable media commentary on how the Bank and the Fund have shied away from selecting a chief executive from the so-called emerging markets or the newly industrialising economies,few have commented on the fact that neither institution has so far been headed by someone from Japan,an Axis power. In 1995 the governor of the Bank of Japan,Toyoo Gyohten,made a serious bid to become the IMF managing director and failed. The IMF had a German heading it only in 2000 when Horst Kohler took charge as managing director.

It is against this background that the decision of the United States to nominate an American of Asian origin to head the bank has been viewed. Much of the media and political attention around the world has been on the ethnic origin of the new Bank president,but note the fact that his appointment does not alter the principle that the dominant shareholders get the CEO they want.

There is,however,another dimension to the Kim nomination. Dr Kim is the first Bank president with no professional link to either Wall Street or the Washington beltway. A large majority of Bank presidents have worked for Wall Street firms,and those who had no Wall Street connection,like Robert McNamara,had a strong US administration connection. Kim comes from Harvard,has no economics or finance background and is a public health specialist.

This signifies two very different shifts in the US administration’s thinking about the Bank that have nothing to do with the question of nationality and ethnic representation.

First,the selection of a non-Wall Street,non-DC personality must be viewed in the context of US domestic politics. The Occupy Wall Street and Tea Party movements,along with the left and liberal politics of civil society activism,have come to occupy centre stage in US political discourse and President Barack Obama is responding to these pressures in the run-up to the presidential elections.

Kim’s selection will appease many of Obama’s supporters and critics. That is why Obama has made much of his nominee. He would be less bothered by how the selection of Kim would be viewed in emerging markets than by how it is viewed by his own potential political supporters.

Second,the decision to nominate a professional with no government experience but with a long association with non-government organisations (NGOs),is a concession to the growing influence of NGOs in development and aid policy both in the US and in Europe.

While the World Bank is an inter-governmental institution,drawing its funds from member governments and run by a board of directors nominated by member governments,its policies have increasingly become sensitive to civil society pressure and NGO agendas. From issues relating to environment to human rights,NGOs around the world,but mainly western NGOs,have increasingly shaped the Bank’s lending policies.

As a consequence,the Bank’s lending for large irrigation projects,power plants and other “hard” infrastructure has gone down,while the Bank’s lending for “soft” infrastructure,like education and healthcare,has gone up. Indeed,healthcare and public health,including an obsession with HIV-AIDS,have come to the fore in the Bank’s lending policies. Kim is the kind of person who was waiting to be selected to head the Bank,given his professional association with HIV-AIDS research and policies. It remains to be seen what developmental vision Kim brings to the Bank.

One consequence of the slow movement on shareholder restructuring,with the US and the EU resisting a dilution of their stake and an increase in the stake of China,Brazil,South Korea,India and other emerging markets,is that the “Rest”,in opposition to the “West”,so to speak,is coming up with a variety of regional alternatives. The most recent such initiative was the idea of a BRICS Development Bank,mooted by India at the last BRICS (Brazil,Russia,India,China,South Africa) Summit in New Delhi earlier this month.

Another trend has been the empowerment of regional development banks like the Asian Development Bank,where Japan and China have started investing more. If the World Bank does not alter its shareholding structure to reflect the shifts in global distribution of income and economic power,its role may get marginalised as regional institutions fill the vacuum.

Equally important,if the World Bank does not return to its original core agenda of providing long-term developmental funding,especially for “hard” infrastructure projects,countries like China and the OPEC economies that have created sovereign wealth funds will step in and marginalise the Bank.

Clearly,while health and education are important sectors for development assistance,and NGOs can play a useful role in promoting development,the Bank must return to its original mandate of being a bank for long-term development projects,supporting infrastructure development in developing economies. It will also have to retain its relevance for the developing world and ensure that rising economic powers have a greater say in the Bank’s decision-making institutions.

This will be the main challenge for Kim,and not the more cosmetic one of being an “Asian” voice at the top.

The writer is director for geo-economics and strategy,International Institute for Strategic Studies,and honorary senior fellow,Centre for Policy Research,Delhi,express@expressindia.com

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