World Views: Does the world still need the World Bank?

There will always be a need for a World Bank, which celebrates a birthday of sorts this week. There is no need for a World Bank with more than 10,000 employees.
President Jim Yong Kim is trying to reform the bank, one of the global financial institutions that emerged from the historic Bretton Woods agreement signed on July 22, 1944. He is getting strong resistance from a rank and file protective of its parking subsidies, business-class travel and generous meal allowances. The greater danger for Kim, however, is that he will be too timid.
Kim is right that the bank’s overarching mission should be to help the 1 billion or so people who subsist on less than USD1.25 a day. It can best do so by complementing, not competing with, the private sector.
The bank, which fights poverty by lending to developing countries for roads, schools, dams and other public-works projects, is bloated and bureaucratic. And those aren’t even its biggest problems.
By its own admission, the bank is fighting for relevancy now that many of its customers don’t need it anymore. The developing world’s rising middle class is attracting private capital and reducing the need for countries to borrow from the World Bank. More than $1 trillion a year now flows from the private sector and major philanthropies to developing economies. Official development assistance, by contrast, totals about $125 billion. Last year, the World Bank’s new lending came to less than $35 billion.
In recent months, African countries have issued billions of dollars in government bonds to fund public-works projects. Kenya sold $1.5 billion of Eurobonds to international investors in June – and could have placed five times that amount. The competing development bank announced last week by Brazil, Russia, India, China and South Africa is another sign that the World Bank no longer sits at the center of economic gravity.
Kim, as of this month, is switching the organization from six geographic regions to 14 global practices, or areas of expertise, including public health, energy, agriculture and governance. The idea is that this will encourage more cross-border collaboration – so that an expert in, say, electricity generation could advise any government, whether it’s in Asia or Africa.
Kim also intends to cut $400 million, or 8 percent, from the budget and about 1,000 staff in coming years. At the same time, he is narrowing the bank’s focus to eradicating extreme poverty and raising the incomes of the poorest 40 percent worldwide by 2030.
This is a useful and overdue refocusing. It could be more ambitious still. Where private capital is willing to step in, for example – especially in middle-income countries such as China and India – the bank should step back.
Most important, the bank should rethink its basic approach to financing public projects. In East Africa, the bank is collaborating with other aid groups and the European Union to finance a hydropower project. It will be publicly owned by Burundi, Rwanda and Tanzania, but it will be privately operated.
Of the handful of institutions that emerged from the three-week gathering seven decades ago at New Hampshire’s Mount Washington Hotel (it charged $11 per day, double occupancy, meals included), the World Bank has most outlived its purpose. It still has a role to play. But to be truly relevant again, it will have to do more than make changes to its organizational chart.

The Editors, Bloomberg