The World Bank’s latest restructure – what it means

The facts:

  • Over 10,000 people in around 100 locations around the world work for the World Bank;
  • The current president is Jim Yong Kim;
  • The Bank lends US$30 billion a year to support a wide range of activities from infrastructure loans, poverty alleviation, health grants, capacity building and ensuring inclusive growth;
  • It is financed by 188 members countries. 

What’s happening:

  • A reorganisation is planned and approved  – the 5th in 16 years. (Others were in 1997, 2001, 2007, 2010);
  • Latest restructuring approved by the governors of the World Bank and the IMF – in the annual meeting of the two bodies that arose from the Bretton Woods Conference. Kim also obtained the mandate when the World Bank / IMF meetings concluded on the 13th of October (where the Bank’s interim poverty target was set at bringing the number of people in ‘absolute poverty’ down to 9% by 2020;  
  • The current restructure will undo the earlier reorganisation undertaken in 1997;
  • Along with the restructure – there has also been a US$400 million budget cut. (to be phased over 3 years – and marks an 8% cut from the current $5 billion annual expenses); 
  • Full proposal for restructure found on this link (Click here)

What the new restructure means:

  • There will be 14 Global Practices – across the bank’s different projects and funds:
  • The 14 Global Practices include:
    1. Agriculture
    2. Education
    3. Energy and Extractive Industries
    4. Finance and Markets
    5. Health, Nutrition and Population
    6. Macroeconomics and Fiscal Management
    7. Poverty
    8. Social Protection and Labour
    9. Trade and Competitiveness
    10. Transport and Infrastructure
    11. Urban Rural and Social Development
    12. Environment and Natural Resources
    13. Water
    14. Governance
  • There will also be thematic areas such as gender, climate change, global employment, conflict and violence, public private partnerships (PPPs) which will be considered;
  • There will be greater centralisation (leading to less power to current country/regional based centres of influences);
  • A reshuffling of senior officers has begun – Sri Mulyani (previously Finance Minister of Indonesia) is now the bank’s COO;
  • Sanjay Pradhan (anti-graft expert) is now the VP for “change, knowledge and learning”;
  • Layoffs should be expected.  For example, each Global Practice will have one global director who will replace four regional heads and the vice president in a speciality area, which will potentially eliminate four senior jobs per expertise;
  • Reorganised bank would focus on working in partnership with the private sector;
  • The culture to shift towards greater tolerance towards a higher-risk / higher reward partnership (which potentially may include more controversial projects and possible moral hazards.)  
  • “If you have a spectacular failure, the only thing that I would be disappointed about is if we didn’t ensure we learned from that failure.” – Kim

The impacts:

  • In 1997, J. Wolfensohn (then President of the Bank) convinced Bank shareholders that a massive decentralisation, which would get development specialists out of Washington into the field, was the way forward. It was felt that being close to the markets would mean that the markets will benefit from the expertise of specialists who will be based in-market.
  • However, Kim wants a contrary approach. He wishes to close a large number of World Bank Group field offices and bring markets based staff of its four arms (International Bank for Reconstruction and Development, International Finance Corporate (IFC), International Development Agency, and Multilateral Investment Guarantee Agency (MIGA)) centrally;
  • Kim feels that the World Bank will become more efficient and effective through consolidating control of its far-flung operations back in Washington and also improve synergy between its four arms (listed above);
  • Kim feels that the World Bank (due to its current structure and bureaucracy) will become a series of regional banks rather than a world bank and fears that the World Bank could “become less than the sum of our parts,” and this in part was a driver for the process of re-centralisation;
  • Kim also wants the WB to coordinate the activities of other regional development institutions – though there are doubts where another layer of coordination going to help improve efficiency;
  • Kim wants the WB to be a “solutions bank” whereas previously J Wolfensohn wanted the WB to be a “knowledge bank” – the difference is not necessarily understood by many.

The questions that remain:

  • Should the World Bank restructure or downsize and let regional developmental agencies such as the ADB (both Asian Development Bank and the African Development Bank), the European Bank for Reconstruction take over some of its roles? The BRICS also recently set up the BRICS Development Bank – for financing infrastructure required for development. The BRICS DB will also be closer to the market and may be more responsive, reactive and attuned to the needs of developing nations. How will the Bank match this level of immediacy?
  • Furthermore, the Bank also feels it can help coordinate across the different regional development agencies (such as the ADB, etc) – but how receptive will they be to the Bank’s interference?
  • Furthermore, there are still hugely capital intensive projects that still need large tranches of low-cost funding and it may be likely that developing nations will turn to regional development agencies and bodies for funding rather than the World Bank where there remains a perception that the terms and policies of funding are dictated by developed/larger nations. How will the World Bank overcome this challenge?
  • Advocates for downsizing argue that since the incidence of global poverty has reduced in the last few decades (particularly India and China) and eligibility of these countries to get low cost financing from the WB has decreased significantly as a result.
  • Will the bank be focussed too much internally during the transition and not enough on developmental and capacity building programmes?
  • Should the bank also focus more on other development needs such as Anti Money Laundering and the Combating the Finance of Terrorism (AML/CFT), human trafficking, narcotics, climate change , and other issues that occur outside a single country context?
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