World Bank’s new direction and the Philippines

As an important client since its first loans in 1958, the Philippines has a stake in the direction the World Bank takes with the imminent change of its presidency. This is an opportunity for the Bank to go beyond fighting poverty, and give top priority to addressing the dangers of climate change, widening income gaps and hindrances to open world trade, top concerns in the Southeast Asia and the Philippines. But getting this agenda off the ground could be blocked if the US Administration’s nominee for the presidency, David Malpass, is put there mainly to slow climate action and contain the Bank’s development role. 

This nomination reinforces the unwritten norm of an American national always heading the World Bank. This manner of selecting the chief of a multilateral agency – and a European leading the International Monetary Fund – is highly problematic, especially as the institution advises countries to adhere to merit-based and competitive governance, and has done good work on the Philippines on governance and corruption.

Be that as it may, the question is what direction the Bank will take going forward, especially considering the dominant size of its lending: US$67 billion in 2018. As of mid- 2018, the Philippines received from the World Bank a cumulative financing of US$19 billion (excluding that from its private sector arm, International Finance Corp.), and the lending in 2018 was US$378 million. This financing went to projects in a range of sectors including transportation, energy, rural development, health, social protection, environment, flood protection and climate resilience

Independent evaluations point to the successes and failures of the World Bank. Over the past quarter century, extreme poverty has fallen by well over half, with East Asia and especially China leading the decline. The Bank’s support for trade and market reforms can take some of the credit for growth and poverty reduction. But it should also take some of the blame for the costly neglect of the environment and climate change that accompanied the charge for growth, especially in Southeast Asia including the Philippines. 

A concern about Malpass, who has been a skeptic of climate actions, is that he may not drive the bank’s plan to lend US$200 billion over the next five years to fight climate change. The World Bank has been involved in the building of resilience to weather disasters. A case in point is a $496.25 million loan for the Philippines in 2018 to help with the recovery, rehabilitation and reconstruction following Typhoon Ompong. The funds were accessed from a “development policy loan” for disaster risk management with an option to do a catastrophe-deferred drawdown.

The World Bank’s agenda would be best focused on global “public” problems such as environment damage, deficiencies in basic health and education, and gaps in infrastructure, where the private sector vastly underinvests. It also needs to blend financing with its expertise in problems of rapid urbanization, alarming demographic shifts, rising income disparities, and climate change. Improving governance and tackling corruption are guaranteed silver bullets for progress in these areas. The World Bank’s experience in policy dialog with governments, and its ability to provide solutions, means it can make a difference.

Taking this direction will help the Bank to have a truly global clientele, including China, which is set to reach high-income status.  But the nomination of Malpass, a critic of Bank lending to China, seems to be a part of the administration’s move to contain the country’s presence. There is an argument, however, for keeping higher income countries, who under current policies “graduate” from the institution as they reach high-income status. Their presence can add value, not necessarily for borrowing money, but for their role in sharing lessons learned along the development path. 

The Bank’s internal governance must also be strengthened. As a counterbalance to the president who chairs the board, there needs to be a strong board giving cohesive leadership for the Bank’s program. The Board needs directors with highly regarded development leaders from the member countries who can provide checks and balances to the presidency because of the intellectual and political weight they carry. If the US Administration’s choice is not to result in the Bank primarily serving American interests, its independence needs to be vastly strengthened. The board, comprising 25 directors, has increasingly been made up of bureaucrats from member countries.

The World Bank is a proficient organization staffed with deep skills in multiple disciplines in development. But for its interventions to be effective, the Bank must refocus attention on the critical public problems of paramount importance to the Philippines and others, blend its offering of financing with knowledge of country experiences, and strengthen its internal governance. 

(Vinod Thomas is a former senior vice president at the World Bank, and visiting professor at Asian Institute of Management, Manila.)