At World Bank Spring Meetings, it's all about 'risk'

Devex
By Michael Igoe, Sophie Edwards

World Bank President Jim Kim at the “Financing for Peace: Innovations to Tackle Fragility” event at the 2017 World Bank Spring Meetings. Photo by: Grant Ellis / World Bank / CC BY-NC-ND

The World Bank and International Monetary Fund Spring Meetings wrapped up this weekend after days of high-level panels, crowded elevators, closed-door meetings and corridor dealmaking.

The events marked an inflection point for the world’s largest development bank, which has moved forward from a tumultuous internal reorganization but now faces the uncertainty of an international political arena in flux. The values and priorities guiding multilateral cooperation are open for negotiation in a way not seen for the past 70 years.

From the vantage point of the World Bank’s atrium, the spring meetings can feel like an open house, with finance ministers, celebrities, politicians and reporters shuttling from building to building and session to session. But over the course of the week, common themes tend to stand out from the crowd, and this year one of them was the role of the World Bank and its peer institutions in managing the various forms of risk that characterize — and challenge — global development today.

With that in mind, here are five takeaways from the 2017 World Bank Spring Meetings.

1. The World Bank wants donors to understand the risks of pulling back and the benefits of leaning in.

Globalization and internet technology are raising citizens’ aspirations across the globe. Yet if expectations of a better life are met only by frustration, “we are very, very worried about more and more countries going down the path of fragility,” World Bank President Jim Yong Kim warned last week.

This, in a nutshell, is the bank president’s message to World Bank donors: development is risk mitigation against global instability. Kim is trying to convince bank shareholders — including the United States and United Kingdom, currently engulfed in contentious debates about the relationship between national interests and international institutions — not to draw down their support.

Much of the bank’s messaging last week — and in the weeks leading up to the spring meetings — painted the World Bank as poised to create win-win outcomes, matching private capital with development investments that can generate social and economic returns.

The bank, in Kim’s formulation, stands far removed from the kind of zero-sum wealth redistribution that anti-globalist rhetoric tends to describe. “People have to think about aid as far more than giveaways,” he said.

2. In an era of tight donor budgets, fragile states will prove a test case for the World Bank’s new model.

Kim is seeking a capital increase to allow the bank to take on the significant role he imagines in aligning pools of available capital and investments in places that have struggled to attract it.

Donors aren’t yet fully convinced. In U.S. Treasury Secretary Steven Mnuchin’s statement to the bank’s development committee, which met Saturday, he offered the Trump administration’s endorsement of the bank’s focus on private sector-led development. But stopped short of committing any additional U.S. resources — or even the same amount of U.S. resources — to realizing that vision.

“We believe that more can be done to optimize the World Bank's balance sheet to avoid a precipitous decline in lending, and we look forward to discussing a full suite of options at a later date,” Mnuchin said in his statement. “For this reason, we do not view the original schedule for considering the bank's capital position as necessary or realistic,” he said.

Mnuchin did applaud the bank’s sharpened focus on fragile and conflict-affected states. The most recent replenishment round for the bank’s International Development Association, which supports the world’s poorest countries, doubled funding to address fragility.

The bank’s challenge now will be combining its focus on fragility with its vision for attracting private capital. Can the World Bank show that it can make peace profitable, and will its shareholders reward the institution if it succeeds?

Drawing different branches of itself together, the bank has created new tools that are designed to bridge the gap between difficult markets and hesitant investors. Ultimately, the test will be the specific projects it is able to prepare. As the bank’s Vice President of Development Finance Axel van Trotsenburg told Devex, “We can talk a lot and analyze a lot, and then the question comes: what are you doing?”

3. The IFC is focusing more on derisking fragile and conflict countries.

The need for the World Bank Group to derisk markets, especially in fragile and conflict-affected countries, came up throughout the meetings, especially with regards to the International Finance Corporation. Although the bank has its own political derisking institution — the Multilateral Investment Guarantee Agency — discussion focused on how the IFC can use its tools and advisory services to derisk on the financial side.

Philippe Le Houérou, IFC’s CEO, spoke to Devex about a new approach to working in troubled countries that involves closer cooperation with the World Bank and a heavy focus on derisking countries, sectors and projects to usher in money from pension funds and insurance companies. “Instead of waiting for an investor to come and restructure the finance, we lean forward and try to create the conditions for more investors to come and feel reassured that the conditions are there to invest,” he said.

Oxford professor and development heavyweight Paul Collier praised the IFC’s new direction but also said it was overdue: “Where has IFC been in fragile states? It’s been missing in action, with a few honorable exceptions,” he said.

4. Multilateral development banks need to collaborate rather than compete.

While the spring meetings drew particular attention to questions about the World Bank’s own future at a time of global change, they also saw broader reflection on the entire multilateral development banking system. A key question that emerged was: Do the MDBs operate as a coordinated system, or as isolated institutions in competition with each other?

One session during the meetings, the Global Infrastructure Forum, convened 10 MDB leaders on a single stage where they discussed how the individual banks currently relate to one another, as competitors or complements, and what it would look like for them to work more collaboratively. (Another byproduct of bringing them all together was the striking visual reminder that all of the major MDBs are led by men.)

Jin Liqun, president of the Asian Infrastructure Investment Bank, suggested that a year from now, the bank chiefs should be able to show more successful projects involving more than one MDB. The following day, Liqun and Kim signed a memorandum of understanding between the AIIB and World Bank to work more closely together “in common areas of interest, including development financing, staff exchanges, and analytical and sector work.”

Xian Zhu, chief operating officer of the New Development Bank, proposed that the MDBs should view themselves as a collective network of “risk mitigators.”

5. The ‘learning crisis’ puts a generation at risk.

A so-called “learning crisis” in education featured prominently at the meetings and will also be the topic of the next World Development Report, one of the bank’s flagship publications. Experts described how despite major progress in the number of children attending school, the quality of the education they receive is substandard and huge access gaps persist.

Gordon Brown, former U.K. prime minister and chair of the Education Commission, said poor education systems increase the risks of terrorism and migration. The two areas are “very much affected by the chances we give young people to develop their talents,” Brown said during a panel convened by the Center for Global Development to run alongside the meetings.

Brown attended the meetings to win support from ministers of finance and the World Bank for his proposed International Finance Facility for Education, which aims to mobilize an additional $13 million annually for global education, as Devex reported.