More Wall Street-like World Bank
From moving meetings with top managers to 8:30am, expanding the trading floor – which manages $65 billion portfolio - to providing risk-reducing derivative products, such as swaps, President Zoellick wants the bank to adopt more private sector practices.
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Learn from Wall Street and scale up the IFC (Adapted from Voice and Noise, 2006)
The first Wall Street lesson that should be considered by the World Bank Group is not about arriving early in the morning but about actively shifting resources from low-productivity entities into higher ones. In this respect the World Bank should make a capital contribution of five billion dollars to the IFC, its private-sector lending institution, fully paid in cash. Why?
Even though the World Bank Group regularly speak about the role of the Private Sector, the outstanding credits of the World Bank to governments are currently ten times those of IFC credits to the private sector.
The Bank has entered into a somewhat stagnant mode from which it will not be able to pull itself out, until it is better able to focus its activities. With so many things going on, it is very hard to see where capital and budgets should be allocated to get the best results, and there should be no better stimulant for getting the house in order than to see important capital resources diverted to a sister institution.
Currently (mid 2004) the World Bank has, according to its own finance department, an unused borrowing capacity of over 40 billion dollars at rates below Libor and to dedicate a fraction of it for an increase of IFC’s equity does not seem at all incompatible with the constant declarations about the importance of the private sector.
“If it ain’t broke don’t fix it.” That might very well be so, but the fact is that IFC’s mission is to take risks in order to assist the private sector in generating sustainable economic growth in the world, and not just to avoid risks in order to guarantee the sustainability of some initial capital contribution and some private development jobs.
“If it ain’t broke don’t fix it” is clearly irrelevant in IFC’s case since, looking at its general performance, it is not that they are broke; just the opposite, it is that they have been doing much too well for them not to be forced to expand.
There have been many calls for flat budgets but those who are hooked emotionally on that concept should remember that they can equally be reached letting some entities grow strongly, compensated by the slower growth of others. This is the way equity and budget resources are, and should be, allocated in the real world, year after year, and so perhaps it is time for WB to adopt some new external best practice
Take all the challenges of the PPPs, regional initiatives and South-South investment with all possible private-sector business following in their wake waiting for help, guidance and support and place it all in the perspective of IFC’s results, and the conclusion should be that the WBG should provide IFC with much more long-term development resources. Real fresh capital increases take ages to negotiate; a check from the World Bank to the IFC could be negotiated in months.
“But really, if IFC is not in need of capital to grow at this moment, why should we increase its capital? Is it not enough just to ask IFC to grow more and take more risks?” Yes, you could go that timid route if you wish, but this proposal is about giving IFC a completely revised new mandate for growth, and there’s no better way to do that than putting the big money on the table, up front.
“But what if IFC does not want that capital increase and refuses to accept it?” Then perhaps that would be all for the better, since we could create an IFC II with access to all the know-how of IFC I, and then have them compete!
In conclusion the immense needs, the ample resources, the more-than-reasonable results seen in IFC, the endlessly repeated talk about the role of the private sector—they are all out there, and so, why don’t the WBG put there money where their mouth is? Might it be because it is comfortable with the current level of efforts? If so, shame on it!
Posted by: Per Kurowski | Aug 30, 2007 1:16:10 PM
Pooling hurricane insurance so as to allow a group of Caribbean nations to cut the premiums by 40 percent is great. But what about some development promoting insurance plans too?
The World Bank should develop through a public private partnership with insurance companies all around the world, an insurance program, accessible to all the workers who travel to other countries under a temporary worker visa programs, through which these workers could offer to guarantee to their temporary host that a substantial indemnity will be paid in the case they do not return to their homeland in a timely way.
It is not enough for the World Bank to be talking so much about the importance of migration to the growth of the world economy it needs also to work to overcome some of the difficulties present.
Posted by: Per Kurowski | Aug 30, 2007 1:35:57 PM
"...so, why don’t the WBG put their money where their mouth is? Might it be because it is comfortable with the current level of [IFC] efforts?"
Could it be that there's a compromise with certain influential quarters who are wary of an expanded role for the WB/IFC in development lending? (Adam Lerrick, for example, articulating the sentiments of those who see the WBG as a competitor in the development lending business, who would like the WBG's development lending activities to be "outsourced". Is there pressure to "privatize" the WBG?).
Posted by: CHAN Chee Khoon | Sep 1, 2007 12:26:56 AM