The west should pay heed to Ajay Banga

I rarely write about the World Bank. Although its headquarters are only a 20-minute walk from where I live, the majestic Bretton Woods institutions pay far less attention to what is happening around the world than they used to. When I was a student in the late 1980s and early 1990s, phrases like “strings attached” and “structural adjustment”—often the name for strict bank lending to emerging markets—were any fuzzy left-wing abusive language by persons. I don’t think we fully understand what we’re talking about. But the sense that the World Bank and the IMF are the commandos of US global capitalism runs deep.

Fundamentally, we were right. What we don’t realize is how poorly countries that didn’t adopt Bretton Woods tend to do. That is the “third world”. The “second world” was the Soviet bloc, which was an economic and political disaster.

The Financial Times did not continue to do some detailed coverage of the World Bank until a decade ago, when our coverage of conflicts of interest with its former president, Paul Wolfowitz, led to his resignation (I was the Washington bureau chief at the time and worked for proud of this) episode). Since then, our coverage has dropped a lot.

Part of the reason is that we have been living in an era of very easy money, where emerging markets have access to cheap private capital on a much larger scale than before. This reduces the importance of multilateral development banks. This is partly due to China’s gradual rise over the past 20 years to become by far the world’s largest official lender. In many emerging markets, China’s financial spending combined exceeds that of the rest of the world combined.

In a short period of time, China went from being a rounding error to being the largest creditor to what we now call the Global South. Three things happened recently. First, we are returning to an era of global monetary tightening. Loans are getting more expensive. Many emerging markets are defaulting. Second, China is retrenching. The Belt and Road Initiative now focuses on both new projects and politically fraught defaults — what China’s critics call “debt diplomacy.” Third, the first president of the World Bank was from the southern hemisphere — Ajay Banga, who took office today. All of this presents an opportunity for the bank to once again take center stage.

Banga is a US citizen born in India – the post of World Bank president is still gifted by the US. But he spent the first three-quarters of his life in Asia, mostly in his native India, where he quickly climbed the corporate ladder (Nestlé, Citigroup, most recently as CEO of Mastercard). This gave him a very different perspective than his predecessors. David Malpass, the outgoing economist and Donald Trump appointee, has not been a huge success. He has trouble acknowledging the threat of human-caused global warming, a problem for an institution whose primary role is to help finance the global south’s transition to clean energy.

Before that, there was Jim Yong Kim, who hired a host of outside consultants to try to overhaul the bank’s entrenched internal culture — the people who charge you to borrow your watch and tell you the time. That was not successful. Of the last few World Bank presidents, only Robert Zoellick has had a significantly positive impact. To be fair, the bank is a difficult supertanker to turn around. Each of the hundreds of pages of loan documents must be approved by a 25-member committee that meets twice a week. Preparing a bank loan can take years.

However, Banga has huge expectations on his shoulders. Joe Biden’s administration wants him to use banks’ balance sheets to make more loans and help close the growing financing gap. That means its AAA rating has taken a hit. In reality, that won’t get Banga as far as the White House thinks it will. The stark truth is that the West wants to squeeze more juice out of lemons, not throw more lemons in the basket. That’s short-sighted.

For every dollar of new capital that the United States puts into the World Bank, it receives $5 of matching capital from other shareholders. This will then be leveraged sixfold again in new loans. Is there any other public dollar return on $1 capital to get a $30 loan? Nothing comes close. If Congress does not agree to a new capital injection, Banga will have to find more innovative funding sources, such as partnering with private lenders.

He played a huge role in key turning points in the global development story. Many of the Global South’s millennium development successes were reversed due to the pandemic and Russia’s full-scale invasion of Ukraine. This is a slow-burn crisis. Increasing Western largesse is directed at Ukraine. This will be even more so in the coming years as the rebuilding of Ukraine becomes a priority. If we want to win the hearts and minds of the global south and reduce China’s grip on its client list, we have to do much better than this. Banga deserves everything he needs to do the job.

Rana, I refuse to say that we need “more Banga for our money” because we don’t like getting too stupid on the headlines on FT. But it captures the enormous financing challenges facing the global South. Do you have any great ideas for Banga?

recommended reading

• My column this week puts Biden in a “tie, almost a match” with Republicans led by Kevin McCarthy in the debt ceiling fight. Of course, the deal could still fall apart over the weekend. For now, however, this is the least bad outcome imaginable.

• be sure to take the time to read Latest articles by Evan Osnos About the world of the New Yorker super rich. His last article was on superyachts (“The Rich and the Rich Yachting”). It’s about the jaw-dropping fees that former and current pop stars get paid to perform at private parties — from a bar mitzvah in Chicago to a Bay Area chief’s birthday party.

• Finally, I’m late Future Ministry: A Novel, by Kim Stanley Robinson, in much the same way that humans learned about climate change later. Robinson’s book, while somewhat futuristic, was the first book on global warming that caught my throat and kept me interested. This is very realistic. The science fiction writer did his research.

Rana Foroohar responded

Ed, my advice to Banga is to call the White House immediately and work out a plan for poorer countries to join a climate change related fiscal stimulus package. The Biden administration knows it needs to find a way to connect with the global South more effectively than it has hitherto. Supporting friends can only take us so far; to achieve the climate transition, the US will have to find ways to trade with emerging markets that have some of the key commodities needed, like green batteries.

Conceivably, the World Bank could be the conduit for all of this. It could help facilitate new growth metrics around sustainability and inclusiveness, and then help facilitate some investment and trade deals that align poor countries with higher environmental and labor standards in exchange for more capital. Even though interest rates are tightening as you point out, there is still a lot of money flowing around the world. Not so much capital is needed as the right capital is needed to drive the right policies.

This would of course expand the World Bank’s mandate and in some respects blur the lines between it and the WTO. But as you know, I think the time has come for a complete overhaul of the Bretton Woods institutions. This might be a good way to start.

your feedback

Now listen to our swamp people. . .

to respond “Kissinger was right on this one”:

“Détente is a matter of global survival and that contribution cannot be taken away from (Kissinger) simply because he is male, old (now), white and immoral (close to immoral). While working at Kissinger Associates , I’m not sure it was the monetary gains that motivated him in later years. He needed to keep in touch with the Chinese leadership and moderated Tiananmen in his writings. There are a lot of articles by China experts who at least get into China this The state can remain an expert on China. This leads to a softening of criticism of a regime that knows how to fight back.” — Alan Wolf