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The Race For The World Bank Post – Analysis


By Kandaswami Subramanian

It is now official. On 15th February, Mr. Robert Zoëllick announced his decision to retire as the President of the World Bank. Earlier, there was some expectation or hope that in an election year, and given the nature of adversarial relations with the Republicans, President Barack Obama could consider extending his term for a short duration. This would give breathing space to the new administration to appoint another for a full term. My earlier piece [i] was written on this premise and made a strong plea against the nomination of Lawrence Summers.

For his own reasons, Zoëllick seems to have decided to quit. The Washington grapevine has it that he may be nurturing fond hopes of becoming the next Treasury Secretary if the Republicans win. Even earlier, the atmosphere was rife with rumours and predictions about the next candidate to be appointed to the post. One of the earliest was Hillary Clinton In one of her staff meetings in the State Department, she was reported to have remarked that she was tired after 20 years of service and travel and would like to settle down to a cushy Washington job. This was denied instantly. However, with the announcement by Zoëllick, the reports have resurfaced and denied again. Indeed, reports about the candidature of Summers fly high though the White House is yet to disclose its mind. Rumours are afloat about Summers having the support of senior officials in the administration, especially Treasury Secretary Timothy Geithner.

What is significant is that the formal announcement by Zoëllick to leave the post has given rise to a spate of debates on the future of the World Bank, its role and the stature of the person who could steer it in the coming years. Views vary from those who are overly optimistic about the change in the Bank leadership to those who are not so sanguine.

Nancy Birdsall of the Center for Global Development referred [ii] to the predicament of Barack Obama who is facing a suspicious Congress in an election year and the promises he has made in recent times to developing countries. She has raised rhetorical questions: Would a non-American be able to raise the resources on Capitol Hill that have been committed in principle for the next several years? Will the Chinese get together with the Indians and Brazilians and other emerging markets to support a candidate of their own? She ends with a plea for a global search for the best candidate with space for candidates whether American or otherwise. In her view, “the next president will need global legitimacy to rescue the bank from the risks of growing irrelevance, and the need for a new vision and direction, if it is to address the looming challenges of this century to its mission of ending poverty.”

Brettonwoods Project, a respected NGO which has been agitating for years to reform the Washington Twins to serve better the interests of developing countries, issued an open letter [iii] to the Board members urging them “to push for the selection of the best candidate through an open-merit-based transparent process, and to ensure that developing countries play a central role in the selection process. It suggested that the candidate must gain the open support from at least the majority of the World Bank member countries, and from the majority of the low and middle-income countries. As the Bank only operates in developing countries, the candidate will lack legitimacy if he is not supported by them. It suggests that the selection process be significantly strengthened through the adoption of public application procedures such as open application, time for deliberation, interviews to be held in public and open voting procedures. As narrated in our earlier piece [iv] the High Level Committee headed by Zedillo had recommended a similar procedure.

Oxfam, another reputed NGO, joined issue. In a Guest post in Financial Times [v] it said, “It seems incredible that the World Bank’s clients-the countries who have to live with its policies and programmes- have no say in who leads the institution.” It added that the next World Bank chief shouldn’t be selected in a behind-the-scenes stitch-up. It explained how, though the World Bank has moved in many encouraging directions in recent years, “it still too often tries to micromanage countries’ development plans.” As she went on, “Sadly the very foundations of the bank’s own governance-its leadership-might have been understandable in the aftermath of the Second World War but is shockingly unacceptable now.”

In our earlier analysis, we referred to the contribution of Zoëllick in moving the Bank away from the malaise in which it found itself under Wolfowitz and how he tried to provide new directions. In particular, we referred to his efforts to unhinge the Bank from the conditionailities of the Fund. Many other commentators have since dwelt on the role played by him. As the cliché goes, the jury is still out on his record.

As Nancy Birdsall said, “He will most likely be remembered as a transitional president- he has taken the institution back to a place which it can be effective, but is still searching for a new mandate.” [vi] In a changed North-South economic balance, development experts feel that the Bank plays less of a pivotal role in providing aid and technical assistance to developing countries and has to get a new mandate. Perhaps, the most significant change brought about by Zoellick was in seeking a new collaborative partnership arrangement with the emerging economies. There is no longer an attempt to dictate, but to understand and cooperate. As he said on 15th February, “The bank has recognized that we live in a world of multiple poles of growth where traditional concepts of the “Third World” are now outdated and where developing countries have a key role to play as growth drivers and responsible stakeholders.”

In an Edit [vii] Financial Times explained that the new approach may help answer the growing complaints from the developing country shareholders who resent the dominance over governance by western powers. It ended adding, “It is to be regretted that Zoëlick’s departure will not lead to a truly open succession contest. His replacement will be chosen according to the decades old stitch-up between the US and Europe that gives the job to an American.”

The Bank management has set in motion the schedule for the selection in motion. On 17 February, 2012, it said in a press statement it would select the new president to succeed Robert Zoëllick by April 20 which is the start of the Fund/Bank’s Spring Meetings in Washington. Nominations will be accepted through March 23. While outlining the selection process, it stipulates that the candidates must be members of the Bank’s 187 countries. Following the nomination deadline, a short list of up to three candidates will be selected for interviews by the Banks’ Executive Directors, “with the expectation of selecting the new president by consensus by the Spring Meetings of 2012.” (Emphasis added.) In the handout, it has also explained that the Board “reconfirmed the importance of a merit-based and transparent process with all the executive directors able to nominate and then consider all candidates.” The procedure outlined is formally correct and may not be faulted. It includes all the slogans and shibboleths voiced in the G-20 statements and communiques. Unfortunately, actual jockeying will take place behind the stage and the entire process will be reduced a farce. This was in full display last year when Christina Lagarde was selected and appointed as the Managing Director of the IMF.

On date, there are no indications that either the G-20 or the BRICS has held any discussion or zeroed in on any candidate. Many western analysts have cynically commented on the lack of agreement in matters of nomination to top posts though some members of the G-20, e.g. Brazil, are vociferous in their claims. As one reporter [viii] said, “EMERGING markets talked up their desire to break Washington’s hold on the top World Bank job on Thursday after Robert Zoëllick announced he would step down, yet they showed little inclination to bank together to force change.” Reuters [ix] reported that an emerging market official told them that there was an effort to pull together a campaign behind a non-American, but there was little enthusiasm because most countries were preoccupied with domestic issues, including impending leadership changes and battling the global downturn.

Mr. Agustin Carstens who heads Mexico’s central bank was an aspirant for the IMF post. However, this time, he has declared that he has no intention of competing for the Bank post. Perhaps an instance of once bit twice shy!

BRICS leaders are scheduled to meet in New Delhi in late March and may consider nominating a candidate. Sadly, by then, the date set for nomination (23 March) would be over and US would have announced its nominee. Surely, Europe will go along with the U.S. nomination as a return courtesy for having extended a helping hand in getting the IMF post for Europe. This could well end in making the BRICS nomination irrelevant.

On its part, China has taken the same stand it took when there was the battle for the IMF post. Its Foreign Ministry spokesman Liu Weimin said in a briefing [x] on 15th February that the World Bank chief should “be picked based on merit and open competition.” As in the past, China is unlikely to reveal its hand until the last minute. In any case, it seems to have made a “Grand bargain” with the US and G7 and is unlikely to go along with BRICS. Moreover, it is also aware that it does not need the World Bank to advance its global interests. Its own strategic aid programmes are large and exceed those of the World Bank in Africa and Latin America. Rather, the Bank needs China more than the other way.

At this stage, it is the US decision that should concern us more. Within hours of Zoëllick’s announcement, Treasury Secretary Timothy Geithner said, “It is very important that we continue to have a strong, effective leadership in this important institution. In the coming weeks we plan to put forward a candidate with the experience and requisite qualities to take this institution forward.” This was hinted by Zoëllick last year. In an interview [xi] , Zoëllick was asked whether he believed next year would see a president from an emerging or developing country. He said, “It was important the U.S. played a ‘larger role’ in multilateral institutions.” He stressed the need for an American to head the Bank so that it could have close relations with the U.S. Congress. The U.S.-World Bank bonds are umbilical and are not easily severed.

A close study of the post Second World War developments and the rise of U.S. hegemony would reveal the close relations between the U.S. government and the World Bank. It is not an exaggeration that the U.S. has used the Bank as an instrumentality to advance its political and economic universe and the Bank, in turn, has grown in size and stature due to the U.S.’ dominance over it. Those who have studied the Brettonwoods negotiations leading to the establishment of the Fund and the Bank are aware that the intention of the U.S. government to locate them in Washington was to ensure that it could be managed by the U.S. Treasury along with Wall Street. U.S. officials negotiated very hard to keep them in Washington and the U.K. delegation led by John Maynard Keynes had to succumb to their negotiating clout at that stage in trans-Atlantic relations. They realized that financial power had shifted from London to Washington (Wall Street).

Two historians of the World Bank narrated the influence of the U.S. on the Bank thus: ‘(t)hroughout the history of the International Bank for Reconstruction and Development (the World Bank), the United States has been the largest shareholder and the most influential member country. U.S. support for, pressure on, and criticisms of the Bank have been central to its growth and the evolution of its policies, programs, and practices.”[xii]

In the same book, another author said, “And the top management of the Bank spends much more time meeting with, consulting, and responding to the United States than it does with any other member country. Although this intense interaction has changed little over the years, the way the United States mobilizes other member countries in support of its views has changed considerably. Initially, it was so predominant that its positions and the decision of the board were virtually indistinguishable.” [xiii] The same author continued, “The United States has viewed all multilateral organizations, including the World Bank, as instruments of foreign policy to be used for specific U.S. aims and objectives.” [xiv] The overall result was that it led to a strong and enduring American imprint on all aspects of the Bank, including its structure, general policy direction, and the manner of granting loans. This was made possible because of the U.S. control over the management of the Bank, especially with the prerogative of keeping an American as the President of the Bank. The influence has been direct and indirect and taken several forms over the years but has not been diluted so far.

Dr. Ngaire Woods of Oxford has been specializing in international relations, especially on governance issues in international institutions and on globalization. She has several valuable studies to her credit on the role of the Fund and the Bank. In one of her early studies [xv] she explained, “In summary, the financing of the IMF and the World Bank has opened them up to US influence in spite of their potential autonomy from this influence. Each time an increase in IMF quotas or replenishment of the Bank’s IDA has been negotiated the Congress has used the opportunity to threaten to reduce or withhold the funds, being yet more prepared than even the Executive agencies – Treasury and State Department- to set down special preconditions for US contributions. ..The overall result seems to have enhanced the capacity of the United States unilaterally to determine aspects of policy and structure within both the IMF and the World Bank.”

One consequence of the U.S. influence was, as narrated by Dr. Woods, “Much more important is the fact that senior management in either the Bank or the Fund would virtually never present a recommendation which risked US disapproval. Indeed, if the issue is a sensitive one, any recommendation will be ‘run past’ the US Treasury as it is being prepared for presentation to the board. .. . all work within the institutions is undertaken with one eye constantly trained on the likely reactions of the institutions’ largest shareholder.”

What happened with the Bank was not accidental. It was consciously driven by the U.S. authorities. In one of its reports issued in 1982 [xvi], the Treasury praised the pre-eminence of the U.S. in the multilateral financial institutions. “The United States was instrumental in shaping the structure and mission of the World Bank along Western, market oriented lines….We are also responsible for a corporate entity with a weighted voting run by a board of directors, headed by a high-caliber American-dominated management and well qualified professional staff. As a charter member and major share-holder in the World Bank, the United States secured the sole right to a permanent seat on the Bank’s Board of Directors.(…) Others.. have recognized the United States as a major voice in the (multilateral) banks.”

Another Treasury report [xvii] of the same year elaborated thus: “On the whole, the policies and programs of the World Bank Group have been consistent with US interests. This is particularly true in terms of general country allocation questions and sensitive policy issues. The international character of the World Bank, its corporate structure, the strength of the management team, and the Bank’s weighted voting structure have ensured broad consistency between its policies and practices and the long term economic and political objectives of the United States.”

At the same breadth, the report added, “By promoting economic and social development in the Third World, fostering market-oriented economic policies and preserving a reputation for impartiality and competence, the MDBs encouraged developing countries to participate fully in an international system based on liberalized trade and capital flows…. This means expanding opportunities to U.S. exports, investment, and finance.”

Over the years, especially with the decline in the U.S. economic power, there could have been a weakening of U.S. control over the Bank/Fund. However, the major development was that unlike in the two decades immediately following the Second World War, a somewhat weakened U.S began to share power with G-7, but the confrontation with the developing countries continues. The formation of G-20 has brought about only cosmetic changes on the management of Washington Twins. The western (read, U.S.) dominance continues unabated.

The control comes through negotiations relating to replenishments. The Bank has to deal with a number of federal agencies, especially Congress. A Note of the Bank Information Center [xviii] explains the system briefly. The U.S. Executive Director reports to the Treasury and gets the brief on U.S. policies. Treasury gets the appropriation from Congress and this gives Congress a tight grip over the magnitude of replenishment as also the conditions (policies and programs) attached to the allocation. There are funding conditions which revolve on governance, accountability, etc. issues. There are voting restrictions which require US Directors to vote against countries and projects. These are really foreign policy oriented and serve the foreign policy interests of the US. Lastly, there is policy guidance and these enjoin on Directors to promote U.S. government policies.

In all negotiations with federal agencies, in particular Congress, the President of the World Bank looms large and holds discussions directly or otherwise. It is in these powwows that an American President in the Bank would be able to strike the right cord with the U.S. Congressmen. Zoëllick is reported to have played a key role getting the replenishment for the Bank after a lapse of twenty years. It is difficult to imagine whether a non-American however eminent he may be will have the same freedom and networking (lobbying?) capability with the U.S. politicians and Congressmen. Birdsall had raised this point in her article.

U.S. leadership of the Bank has ensured that the Bank’s funding programmes serve broadly its economic, political and strategic policies. This came out in flying colours in the negotiations with Congress on IDA replenishment which was approved in December last after twenty years. This was the first time when Congress approved the capital increase programs of all development banks. As a report in Foreign Policy [xix] “the World Bank and Treasury officials provided dozens of briefings to key members of Congress over the past year explaining in detail the activities and making the case for why the institution needed a general capital increase, the first since the late-1980s. Bank president and Washington veteran Robert Zoëllick was reportedly a tireless interlocutor. As a former senior Bush administration official, Zoellick has strong credibility with Congressional Republicans.” What clinched the issue was explained by one of the Treasury officials thus: “What really carried the day was the fact that the multilateral development banks advance our national security and are doing a lot of tough work that helps the United States safeguard the enormous investment our troops have made in stabilizing countries from Afghanistan to places where natural disaster strike like Haiti.”

A Report to the Senate Committee on Foreign Relations had done into the issues governing change in international financial institutions. [xx] It noted, “In general staff found that the FIIs still serve U.S policy interests and leverage American taxpayer dollars. Therefore the U.S. should retain a leadership role in the institutions.” (Emphasis added.) In a later part it said, “Regarding the politically fraught issues of governance, voting rights, and citizenship directives, U.S. voting shares and veto authority should be maintained and that having an American as head of the World Bank helps maintain domestic public support for the institution. Any changes to these arrangements should be considered on a system wide basis, including the IMF, the World Bank and regional MDBs. Staff does not underestimate the difficulty in achieving such changes.”

During the cold war years and, later, after the collapse of the Soviet Union, the U.S. promoted globalization aggressively under the rubric of the Washington Consensus. It sought trade and capital opening from developing countries. These policies enabled global expansion of U.S. based multinational corporations. The World Bank promoted research through its reports and especially the annual World Development Report (WDR) became the hallmark of thinking in economics. In fact, there was “thought control” in the preparation of these reports and whole effort was to glorify the market model and the fruits of globalization. Sadly, the market model promoted by the Fund/Bank was flawed and caused misery and famine in some countries. Developing countries began to move away from the Fund for emergency assistance and the Fund was getting cash starved and was forced to sell its stock of gold to meet the administrative expenses. On the Bank’s side, it research credibility as a fountainhead of Development

Economics was heavily dented when a report of the Evaluation (IEO) headed by Prof. Angus Deaton was given in 2007. The IEO criticized the poor quality of work done by the Bank. The most damning criticism was its finding that Bank researchers are “under pressure from the Bank presidency and elsewhere not to say things that go directly against the broad policy line that the Bank is espousing.” It also said that researchers overzealous about promoting globalization without due regard to facts and ground reality.

The most egregious example related to Prof. Stiglitz who was the Chief Economist in the Bank. Stiglitz attacked the Fund/Bank policies and accused them of having caused the Asian Financial crisis. This was acutely embarrassing to the U.S. government and its Treasury. Mr. Wolfensohn who was then the President was confidentially advised to terminate the services of Prof. Stiglitz and Wolfensohn’s second term was linked to his doing it. Prof. Stiglitz was sacked and Mr. Wolfensohn got a second term! It is indeed a revenge of history that Prof. Stiglitz was awarded the Nobel Prize for Economics two years later.

There are some research studies which suggest how U.S. aid, especially through the World Bank has been used to ensure good behaviour in voting in the U.N. and other international bodies. “Good” boys are rewarded with aid and the “bad” guys are punished. It was not charity that countries like Pakistan and Turkey continue to get aid from the Fund/Bank though there is no economic rationale to continue with them. U.S. secures these objectives not by correspondence or written directives but through personal contacts and exchanges with the State Department or Treasury. We referred earlier to the finding of two historians how top management in the Bank spends much more time meeting with, consulting and responding to the U.S. than it does with any other member country. Things have not changed much in recent decades. There is a club-tie relationship and this is brought about by an American being at the top of the Bank.

There is one last issue which is interesting. This has been brought out in the article [xxi] of Eric Toussaint. This relates to the influence of the U.S. business circles and big capital on the Bank. The Bank has been obtaining its financial resources by issuing bonds which have the safest grading and are held by U.S. banks and financial bodies. They are the largest holders of World Bank bonds. This link also explains the source of leadership for the World Bank. Out of the ten leaders who led the Bank from Eugene Meyer (1946) to Wolfensohn (1995-2005) eight came from major Wall Street Banks and, after retirement, all of them went back to Wall Street. In short, there is a revolving door relation with the Wall Street and the World Bank. In the post war years, the U.S. was the major source of capital resources. Though the situation has changed substantially and there are other financial centers, the fact remains that Wall Street is dominant.

As can be seen from the above narrative dating back to the formative years of the World Bank till date, there is a close and rather opaque and unstated link between the U.S. government, business circles and the Presidency of the World Bank. U.S. will not be willing to give up the prize notwithstanding the recent developments and the economic downturn. It secured that power when it was a rising power. Now it is a waning power. It is more difficult to manage waning power; rather, it will give rise to neurotic demands for control over the Bank. Indeed the present procedure will result in the appointment of an American. Yes, there is threat to the Bank.

The threat to the Bank is in the longer run and was described by Arvind Subramanian and Devesh Kapur in a recent article. [xxii] “The current selection procedure is losing legitimacy in a changing world, and it carries greater risks of a bad outcome; an unsuitable candidate. The consequences of retaining it might not be dramatic, as Keynes prophesied, but there is a real possibility that the Bank will ossify into an institution whose increasingly impoverished G-7 donors dispense progressively smaller sums of money in the same questionable ways to a shrinking number of supplicants.” Sadly, that is how institutions atrophy when they lose touch reality. But it will be a long haul and, perhaps, not in this decade!

i Subramanian, K (2012): The race for the World Bank post, South Asia Analysis Group, Paper no.4905 dated 10th February 2012.

ii Nancy Birdsall (2012): The Next World Bank President: A White House stuck between Promises and Political Realities, Global Development: Views from the Center, February 13, 2012, available at /2012/02/the-next-world-bank-president-a-white…

iii Brettonwoods Project (2012): Appointment of the World Bank pre3sident: Open letter to all governors of the World Bank, 15 February 2012 available at[884]=x-884-569496

iv Ibid Item (i) above.

v Barbara Stocking (2012): Guest post: Don’t stitch up the World Bank presidency, Financial Times, February 16, 2012 at -bank-presidency

vi Alan Beattie, Departure leaves World Bank looking for direction, Financial Times, February 15, 2012.

vii World Bank’s role, Financial Times, February 16, 2012.

viii Emily Kaiser, Brics all talk?,, Feb. 17, 2012 at

ix Emily Kaiser, Talk, But little action, to break U.S. grip on World Bank job, Reuters, Feb.16, 2012.

x Pick World Bank chief based on merit, Chinadaily, 201-02-17 at

xi Emerging Markets, Zoëllick hints US will retain grip on Bank presidency, 22/09/2011 available at 905731/zoellick-hint-US-will-retain-grip-on-Bank

xii Kapur, Devesh, Lewis, John P, Webb, Richard (1997): The World Bank, its First Half Century, Volume 1 and 2, p.1275 and p.766

xiii Catherine, Gwin, in Kapur, Devesh, Lewis, John P, Webb, Richard (1997): The World Bank in its First Half Century, Volume 2, p.248.

xiv Idem, p.195

xv Ngaire Woods (2003): The United States and the International Financial Institutions: Power and Influence within the World Bank and the IMF, Chapter V of US Hegemony and International Organizations, Oxford University Press, 2003.

xvi I draw this Para from Eric Toussaint, The influence of the United States on the World Bank, Committee for the Abolition of Third World Debt, 2 November 2006 available at

xvii Ibid Note xvi above.

xviii Bank Information Center, U.S. Government Oversight, available at

xix David Posco, Congress gives some love to the World Bank, February 14, 2012 available at

xx The International Financial Institutions: A call for Change, A Report to the Committee on Foreign Relations United States Senate, One Hundred Eleventh Congress, March 10, 2010 available at

xxi Ibid. Note xvi above.

xxii Arvind, Subramanian and Devesh Kapur, Who should lead the World Bank?, Project Syndicate, 2012—2-17 available at http://www.project-

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SAAG is the South Asia Analysis Group, a non-profit, non-commercial think tank. The objective of SAAG is to advance strategic analysis and contribute to the expansion of knowledge of Indian and International security and promote public understanding.

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