World Bank: Stress test

The World Bank: Changing focus In the muddy waters of the Congo, where the river speeds into what are known as the Inga Rapids, sits what some see as the future of electricity in Africa, and, quite possibly, the World Bank as well.

Jim Yong Kim, the bank's president, certainly thinks so. Despite US concerns, the World Bank's board last year approved a $73m project to help authorities in the Democratic Republic of Congo conduct environmental and other feasibility studies and re-energise decades-old plans for what would be the world's largest hydroelectric complex.

The move is a bold attempt at getting back into the "mega projects" game the bank was once renowned for and giving new impetus to a long-dormant project. Were it actually to be completed one day, the Grand Inga complex would certainly be mega and one of the bank's biggest ever projects, costing at least $50bn, comprising eight dams and generating 40,000MW of power, or half what Africa produces now and twice the output of China's Three Gorges Dam.

Beyond that, says Mr Kim, it would stand as a sign of the World Bank's unique power to make big and vital infrastructure projects viable, or "bankable", for investors and to do so in complicated environments such as the DRC. The first stage is to deliver a single new dam worth some $12bn, a fraction of which would be financed by the bank.

"This is a classic example of a project that would never happen without the involvement of groups like us," he said on the eve of this week's spring meetings of the World Bank and International Monetary Fund. "It is a project that I really want to get started." Such intent matters more now than ever before.

Founded 70 years ago alongside the IMF in the closing days of the second world war, the World Bank now has 188 members and remains a central force in global development. It doled out more than $65bn in loans, grants and other commitments last year to developing countries, with more than 12,000 staff and almost 5,000 consultants in 131 countries working on everything from education to climate change and health policy to bridges and dams.

The new reality

But history and the shifting power in the global economy are catching up. For decades the bank has weathered criticism from anti-globalisation campaigners and environmental groups, many of which have seen it as an instrument of US power, but its current dilemma is more profound. With China and other emerging economies pushing new alternatives to existing multilateral institutions, there seems to be little question that the way the global economy is governed is undergoing its biggest change since the World Bank and the IMF were established at Bretton Woods.

Even as the US has mounted its own ineffectual diplomatic pushback against the Beijing-backed Asian Infrastructure Investment Bank, the reality is that the very institutions that Washington is seeking to defend are already trying to adapt to the new reality.

While the US has lobbied allies not to join the AIIB, both Mr Kim and Christine Lagarde, managing director of the IMF, have publicly embraced the new institution.

They may not have any choice. Ms Lagarde now speaks of the need for a "new multilateralism" that embraces emerging players such as the AIIB as a way to band together and boost lagging global growth. She has also grown hoarse urging a Republican-controlled US Congress to ratify 2010 reforms that gave China and other emerging economies greater representation at the IMF, where the US retains a veto.

Mr Kim last week vowed to do everything in his power to find "innovative" ways to work with the AIIB, adding that as the search for successors to the UN-sponsored millennium development goals continues "there's more than enough work to go around".

He denies that his stand puts him at odds with the White House that appointed him in 2012. Indeed, US officials have said that they would like to see the AIIB work with existing multilateral institutions once it begins lending and have reserved their grumbling about allies joining for anonymous utterances.

The World Bank president is also clear, however, that he believes he has a more nuanced understanding of what a future of co-operation looks like than some in the US administration. "I don't think Jack Lew [the US Treasury secretary] and I are saying anything different about the Asian Infrastructure Investment Bank," he says. "I just have a lot more very fine-grained feel for howit is going to work, for how our collaboration is going to work, because I do this every day."

It's not all about the money

His vision for the survival of the World Bank rests largely on a "hybrid" future built around loans that come with vast pools of knowledge.

The former immunologist points to the fact that both China and India have in recent years increased their borrowing from the World Bank not because they need the money but because, he argues, they want its expertise.

"There is no such thing as breaking the international order," Li Keqiang, China's premier, told the Financial Times in a recent interview. "We gained advanced experience from working with the World Bank and other institutions . . . China has been a beneficiary of the current international system."

Mr Kim accepts that to deliver that expertise better the bank needs to be more nimble, especially as it faces rising and "inevitable" competition.

"It's not just the AIIB. But it's the bond markets. People can go directly to the bond markets now and raise funds . . . Why are we trying to get faster from conception to delivery? It's because there's competition out there. Why are we trying to get better at the movement of knowledge? Because countries have options. That's just a fact.

"We were the biggest people on the block [and] by far the biggest lender to these poor countries," he says. "They did not have any other sources and you know we could basically call the shots. [But] as everyone in the world has pointed out, we are not there any more."

Few doubt the bank is in need of change. David Dollar, a former US Treasury official who spent 20 years at the bank, says it has long had a plodding bureaucracy that at times has caused some borrowing nations to shy away.

He cites an Indian official who once told him: "Mr Dollar, the combination of our bureaucracy and your bureaucracy is deadly."

Still Mr Dollar - who once ran the bank's China operation - worries that the Kim reforms may end up centralising its operations and expertise and make it too focused on technocratic solutions rather than putting experts in the field. "That is not how development works in practice", he says.

Some bank watchers also question whether Mr Kim, who was considered a progressive when he arrived and has been vocal on issues like inequality, is returning the institution to what they see as its "bad old ways". Lobby groups remain critical of its resettlement policies and its slow updates to environmental safeguards. They also worry that the competition from the likes of the AIIB is prompting it to return to its old model of backing growth and massive infrastructure projects.

Nicolas Mombrial, who tracks the World Bank for the aid agency Oxfam, says there are increasing "glimpses of the old World Bank". He adds: "I think they are going the wrong way and that they may crash if they go there."

Mr Kim's efforts at transformation have not always been welcomed by bank staff. A now two-year-old reorganisation of the bank into global "practices" designed to better organise its expertise has been controversial and drew a vocal staff revolt last year.

None of that staff anger has been apparent around this week's spring meetings but some of his ideas and methods continue to draw rolls of the eyes from bank insiders. The president is an evangelist for open plan offices and has moved his desk from a traditional office suite into a towering double-height hall in the bank's Washington headquarters. But most World Bank staff, including senior executives, continue to work out of the rabbit warren-like offices that have long been the norm, and say they prefer it that way.

Growing dissent

Some senior staff complain that in his effort to create global practices filled with experts he has driven away some world-class talents. There are also those such as Scott Morris, a former US Treasury official who oversaw Washington's relations with the bank in the first Obama administration, who argue that the reorganisation has masked the need for more radical change.

Well before the AIIB was conceived, he says, the bank was losing market share in the world of development finance to regional competitors such as the Asian and African development banks. After a round of capital increases in 2010, Mr Morris and a colleague at the Center for Global Development wrote in a paper last month, the World Bank's share of the capital held by all multilateral development banks fell from 50 per cent to 39 per cent.

At the same time the private sector is playing a growing role. Foreign direct investment into emerging markets has been rising rapidly. In 2014 the Paris-based OECD found that FDI from its largely wealthy member countries into developing economies was worth 1.7 times the flow of official development assistance, including that from the World Bank. These new dynamics, Mr Morris says, mean that the bank should be moving out of its traditional lending function and focusing more on deploying expertise, or as a hub for discussions on big issues such as climate change.

"[The World Bank] is losing salience if it sticks with that core model and doesn't go in another direction," he says.

Mr Kim disputes that. He argues that the bank's competitive advantage comes from the unique link between its lending function and its expertise. But not all of its shareholders agree with those lending imperatives.

Last year's board decision to back the $74m funding to help revive the Grand Inga project in the DRC came with an important abstention: that of the US, which raised questions about key elements of the scheme.

"Notwithstanding the project's potential, there are significant governance and environmental risks that need to be effectively managed for such a large, complex project to succeed," the US Treasury said in explaining its vote.

Whether the Congolese project will ever come to fruition remains an open question. By some accounts, damming the Inga Rapids was first floated as an idea almost a century ago. Two dams were built in the 1970s and 1980s but they are now in poor repair and operating well below their capacity.

If the World Bank wants to avoid a similar fate and survive the onslaught of new competitors it will have to hope for a better future than that.

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