Trump whiffs on World Bank president selection

If ever an international organization has outlived its original mandate and is in need of serious reform, it has to be the World Bank. However, it is highly questionable whether David Malpass, President TrumpDonald John TrumpMueller report findings could be a 'good day' for Trump, Dem senator says Trump officials heading to China for trade talks next week Showdown looms over Mueller report MORE’s nominee to head that organization, has the experience, vision or inclination to successfully do the job. 

Sadly, it seems that in nominating Malpass, the United States will have wasted yet another opportunity to fundamentally reform the World Bank in the right direction. As a result, that organization will likely continue to fail to realize its full potential in efficiently promoting development and will continue to waste world taxpayers’ money on a large scale.

Whoever becomes the next World Bank president should ask a set of basic questions of that powerful lending institution. 

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What sense does it make for the World Bank to continue lending the majority of its resources to a handful of middle-income countries that can more than meet their financing needs in the external capital markets? Should the World Bank not become more an advisory consultant rather than a lender to its middle-income client countries?

Might the World Bank not get more bang for its taxpayers’ buck if it largely focused its lending efforts on those poor countries, particularly in sub-Saharan Africa, that are shut out from the global capital market? Might it not serve the global community better by helping to promote international cooperation in dealing with problems like environmental degradation and world health problems?

Despite the bank’s official rhetoric to the contrary, around half of its loans still continue to be made to as few as 12 middle-income countries, which do not need the World Bank’s resource. 

These countries include Brazil, China, India, Indonesia, Mexico and Turkey, all of which have had little difficulty in recent years borrowing as much money as they need from the market. World Bank loans to these countries currently represent less than 1 percent of the private-sector funds they now receive. 

From the bank’s narrow perspective, lending to middle-income countries makes sense. These loans are more likely to be repaid than those to the lower-income countries, and the projects they finance are more likely to succeed. However, from the taxpayer’s perspective, one must ask whether such lending is the best use of the bank’s money. 

China is probably the most egregious example of a country that should long since have graduated from World Bank borrowing. After all, China is now sitting on a mountain of more than $3 trillion in international reserves and has no difficulty in tapping the international capital market. 

Making World Bank loans to China even more difficult to justify is the fact that with its Belt and Road Initiative, China has itself become a major competitor of the World Bank. It has done so by lending vast sums of money for infrastructure projects of questionable value to a host of emerging market economies. 

If China is the most obvious country that no longer needs the World Bank’s loans, the same could be said of countries like Brazil, India and Turkey, where foreign investors have been tripping over themselves to make loans. 

While the World Bank desperately needs an impartial and energetic reformer with good judgment and without an ideological agenda, who might be able to build international consensus for real reform, David Malpass would not seem to fit the bill. 

Setting aside his dismal record as chief economist at Bear Stearns as that institution hurtled toward bankruptcy in 2008, Malpass is known as a cheerleader for President Trump’s "America First" policy. He also is known for his considerable disdain for multilateral organizations and for international economic cooperation.

This hardly qualifies him to build the much-needed consensus for real World Bank reform to more efficiently promote international economic development.

If there is a silver lining to Malpass’ nomination, it is that it might hasten the day when the United States’ monopoly of nominating the World Bank’s president is seriously challenged.

Maybe then there will be a chance that the World Bank’s leader will be chosen on merit after a worldwide search for someone who has the proven credentials to push the World Bank in the right direction. 

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund's Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.