Trump backs World Bank critic to lead it: What it means for the world, explained

US President Donald Trump on Wednesday nominated Treasury Department’s David Malpass to lead the World Bank.

The nominee, a long-time Republican and Trump loyalist, expressed certainty over his ability to helm it, despite his past criticism of the premier anti-poverty institution. A long-standing critic of the bank’s lending policies vis a vis China, he announced his intention to limit the scope of its lending to the poorest countries, calling himself a “pro-growth reformer“.

At a press conference in Washington, Trump praised Malpass as a “strong advocate for accountability at the World Bank”. He added that he expects Malpass to ensure the bank’s dollars “are spent effectively and wisely, serve American interests and defend American values”.

Treasury Secretary Steven Mnuchin and First Daughter Ivanka Trump led the search for the next World Bank President and recommended Malpass. When, if at all, his candidacy is approved, Malpass will step into the shoes of Jim Yong Kim, who resigned prematurely in January, after holding the post for six years.

CEO Kristalina Georgieva will serve as World Bank’s interim president until the selection process for the new leader is complete.

Why did World Bank chief resign?

The announcement of Malpass’s candidacy comes nearly a month after Kim announced he would be stepping down, amid differences with the Trump administration over climate change and development resources.

Kim is leaving to join a private equity firm with a “focus on increasing infrastructure investments in developing countries”.

Appointed by the Obama administration in 2012, at the recommendation of Hillary Clinton, Obama reappointed Kim in 2016. His resignation sent shockwaves across the international aid community and came into force on February 1, 19 months into his sophomore term.

The bank is likely to face challenges to its business and banking model once it comes under Trump’s purview, which explains the robust demands to reconsider the American-only criterion for the bank’s leadership. Trump’s noted  towards international development further clouds the bank’s future.

Formed in 1944 to help rebuild European countries devastated by World War II, the Washington-based institution comprises 189 member nations; it has supported infrastructure projects with traditional loans, interest-free credits, and grants across the world.

This is how the World Bank selects its president.

President’s selection

It has been a tradition to approve the nominee put forward by the US, which is the bank’s largest shareholder and holds 16% of its voting power. Once the board of executive directors confirm the nominee, s/he serves for a five-year, renewable term.

In 2011, a new and transparent merit-based system was instituted, which called for nominations from all board members. Candidates must be nationals of the bank’s member s, and cannot be a bank governor, executive director or alternate, the new rules state.

Thereby, in the lead-up to Kim’s 2012 appointment, he became the first US nominee to face official challengers from Colombian economist Jose Antonio Ocampo Gaviria and Nigeria’s then finance minister Ngozi Okonjo-Iweala.

To avoid a Trump nominee from filling the position, the administration hastily re-appointed Kim ahead of the 2016 presidential polls.

Following Kim’s sudden departure, a press release by the World Bank affixed February 7-March 14 as the period for submission of new nominations. After this, executive directors will vote on the nominees and put up a shortlist of up to three candidates.

These candidates will then be interviewed, and the new president selected prior to the International Monetary Fund and World Bank Spring Meetings, set for April 12-14 in Washington, DC. 

Who is Malpass and what’s he critical about?

The 62-year-old conservative has served as a senior economic advisor to the US president during his 2016 election campaign. He also served in the Ronald Reagan and George H W Bush administrations.

Malpass, who has served as US Treasury’s undersecretary for international affairs since 2017, was recently involved in the tense US-China trade negotiations.

A critic of multilateral institutions in general, he has notably called the IMF “entrenched” and “intrusive”, besides being a sharp critic of the World Bank, especially over its lending to China, which has sufficient resources of its own, is too wealthy for such aid, or as he claimed on one occasion, “has got other resources and access to capital markets”.

“The World Bank’s biggest borrower is China. Well, China has plenty of resources, and it doesn’t make sense to have money borrowed in the US, using the US government guarantee, going into lending in China[…],” he told the Council on Foreign Relations in November 2017.

His idea of ‘meaningful reforms’

Over the last two years, Malpass has pushed meaningful and real reforms for the bank to curb its loans to China, noting how Beijing has left various SAARC nations, such as Sri Lanka, Maldives Pakistan, in crushing debts with its ‘Belt and Road’ infrastructure development programme.

Last April, the bank had increased its lending capital by $13 billion with the unexpected support of the Trump administration in exchange for certain reforms. Speaking at the White House on Wednesday, Malpass said he would seek to implement these reforms, which include curbing loans and charging higher interest to advanced economies like China. According to White House officials, Malpass will also champion the role of the private sector, oversee an increase in lending transparency and more “competitive” tax systems.

“I’m very optimistic that we can achieve breakthroughs to create growth abroad that will help us combat extreme poverty and increase economic opportunities in the developing world,” Malpass said. He added that a key goal for the World Bank would be to ensure that women achieve full participation in developing economies, for which he will be working alongside Trump’s senior advisor Ivanka Trump and her initiative to improve women’s global development and prosperity.

A controversial choice

Malpass’s nomination is subject to a vote by World Bank’s executive board and could draw challengers from some of the bank’s 188 other shareholding countries, chiefly China, the third-largest shareholder after Japan.

Sources close to the development informed the press that Mnuchin has already begun to reach out to shareholders to make the case for Trump’s candidate. Malpass, too, will travel to meet international officials to assess what other countries want from the bank.

However, former US Treasury officials have reportedly questioned his qualifications,  his illogical opposition to Federal Reserve policies and failure to anticipate the global financial crisis when he worked as chief economist at investment bank Bear Stearns, which collapsed in 2008.

His intentions for the World Bank, especially to narrow its focus of lending to the poorest nations, gives further cause for concern, as it could severely limit the bank’s role.

Challenges ahead

Emerging economies in 2011 successfully challenged and thwarted the US nominee-only tradition in a bid to diversify the bank’s leadership, and the upcoming vote will hopefully open and level the playing field for other candidates to make their cases.

But there is that double-edged sword, given Trump’s apathy towards multilateral . Should the US lose World Bank presidency, it will presumably not have enough incentive to continue supporting the institution. It is, therefore, not outside the realm of possibility that the US could withdraw its support for the bank if the next president is not American.

That said, many member nations have been increasingly critical of what they perceive as Washington’s growing influence on the bank, which may unfold in a contentious fight between the US and other countries over the appointment of the next president, polarising them to rally for a rival nominee.

According to Reuters, however, European shareholders who hold another significant chunk of the voting power are unlikely to proffer their own nominees. So, it is not clear if other countries will propose alternatives to challenge Malpass for the presidency.

Prarthana Mitra is a staff writer at Qrius

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