It’s a story for our times: A critic of the World Bank takes over the World Bank, nominated by a nationalist U.S. president who rejects the principle of global consensus on which the institution has long operated. The scenario is looking increasingly likely. President Donald Trump has nominated David Malpass, undersecretary of international affairs at the Treasury Department, as the next president of the development lender. Given Malpass’s attacks on how it operates, change could be in store for the World Bank.
1. Why does the U.S. president choose the World Bank head?
Officially, he doesn’t. He merely nominates one of potentially several candidates, with the final decision made by the World Bank’s executive board, which represents the 189 member nations. But under an informal pact between the U.S. (the World Bank’s biggest shareholder) and Europe, an American has always led the World Bank, while a European serves as managing director of the International Monetary Fund. Malpass’s views may present a challenge for his candidacy, since the World Bank executive board has stated that the next president should be committed to “international cooperation.”
2. Why does that arrangement exist?
It’s a nod to the history of the sister institutions, both based in Washington. U.S. Treasury official Harry Dexter White and British economist John Maynard Keynes were the driving forces behind the founding of the two organizations in the wake of World War II. The IMF was created to oversee a new system of exchange rates pegged to the dollar. The World Bank would fund the reconstruction of Europe. White was expected to be named head of the IMF, but Belgian financier Camille Gutt got the job after White was accused of being a Russian spy. American investor Eugene Meyer became the first president of the World Bank, and a tradition was born.
3. What is Malpass’s beef with the World Bank?
He’s questioned the World Bank’s need for more capital from its members and the growth of staff salaries at the bank, though he came around to supporting a $13-billion capital increase for the lender last year. He’s been critical of the bank’s heavy lending to China, given that country’s ample financial resources. More broadly, Malpass declared in 2017 that “multilateralism has gone substantially too far” away from the “values of limited government, freedom and the rule of law.” Plus, he hails from an administration that pulled out of the Paris climate-change accord at a time when the World Bank has been ramping up investment in environmental projects. Speaking generally of “multilateral organizations” such as the World Bank that help other countries grow out of poverty, Malpass told a 2017 congressional hearing that “they spend a lot of money, they’re not very efficient, they’re often corrupt in their lending practices and they don’t get the benefit to the actual people in the countries.”
4. What might Malpass seek to do at the bank?
In an interview on Bloomberg Television on Feb. 7, Malpass said the bank must follow through on a commitment to lend less to China and refocus on its core mission of raising living standards in poor countries. “It’s not at all a disengagement from China, but more a shift in the relationship so that more money can be available for the lower-income or developing countries,” he said. He also said that he cares “deeply about the mission of the World Bank and of development in general.”
5. Could the World Bank’s mission really change?
It’s happened before. Under former U.S. Defense Secretary Robert McNamara, who was president from 1968 and 1981, the bank pivoted toward financing development in the world’s poorest countries. Today, its official mission is to end extreme poverty and reduce inequality. Malpass’s public remarks suggest he may be more interested in boosting overall global economic growth.
6. Why would Trump choose a World Bank critic to lead it?
Trump says his administration rejects “the ideology of globalism,” something he’s shown by launching a protectionist trade war, withdrawing from international agreements, threatening to leave the World Trade Organization and questioning the value of the North Atlantic Treaty Organization. The World Bank, like NATO, is a fixture of the rules-based international order that Trump’s predecessors built and defended, but that Trump says isn’t working sufficiently in the interests of Americans. In Malpass, Trump chose a veteran economist with Wall Street experience who understands the workings of Washington and international diplomacy. Malpass was a senior Treasury official under President Ronald Reagan and chief economist at investment bank Bear Stearns. Trump has rarely aimed his wrath directly at the World Bank. And his daughter Ivanka is a fan. The bank created a fund to finance women entrepreneurs after she championed the idea.
7. Is it time to pick a non-American as president instead?
Some commentators certainly think so. Economist Joseph Stiglitz, a Nobel laureate, has called for an end to the “outdated and counterproductive monopoly,” noting the increased economic clout of developing countries. The board has shown it’s sensitive to the criticism. It says the next president will be chosen based on merit, and it has given countries until March 14 to put forward candidates. No emerging-market contenders have stepped forward so far, however, and there appears to be little appetite among member countries for a fight with the Trump administration, according to a person familiar with the selection process. Some experts argue that the voting share of emerging markets such as China and India should be expanded, considering the size of their economies.
8. Has there been a challenge to a U.S. chief before?
Yes. In 2012, the bank sought a replacement for Robert Zoellick, who had been a chief U.S. trade negotiator. Two non-Americans stepped forward to vie for the job: Ngozi Okonjo-Iweala, then Nigeria’s finance minister, and Jose Antonio Ocampo, a former finance minister of Colombia. They were beaten out by Jim Yong Kim, a public-health specialist who was nominated by Barack Obama. When U.S. President George W. Bush nominated ex-deputy defense secretary Paul Wolfowitz to the job in 2005, critics questioned whether he had the development expertise to lead the bank. Wolfowitz got the job but resigned in 2007 after a scandal over a pay raise for his girlfriend.
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