The puzzling geopolitics of America's support for proposed World Bank reforms
In supporting a pivot away from the primary concerns of low-income countries, the US risks losing an important lever of policy influence around the world.
I: A changing World Bank at a pivotal geopolitical moment
The World Bank is in the middle of considering reforms to its mandate and scope of operations. As I argued in an earlier post, the proposed reforms likely mean that that Bank’s attention and resources will shift away from low to middle income countries; as well as from poverty alleviation in low-income countries to providing global public goods (such as addressing climate change).
Of course, reasonable people can debate the merits of this conclusion. However, there is no escaping the fact that the Bank’s constrained resource envelope coupled with its proposed expanded mandate and shifts in focus present real trade-offs in the real world that cannot be ignored (more on this here, here, here, and here).
All indications are that the United States, the World Bank’s most influential shareholder (and the de facto appointing authority of the Bank’s president), supports the changes. It is public information that the US opposes an increase to the Bank’s resource envelope. US Treasury Secretary Janet Yellen is on record backing the idea of expanding the Bank’s mandate to provide global public goods — including climate change and migration. Both positions do not align with the expressed needs of low-income countries; and are likely to diminish the Bank’s relevance in such countries. This comes at a time when the World Bank is already facing stiff competition for relevance from regional development banks (RDBs) and China.
As I argue below, a further erosion of the World Bank’s relevance in low-income states, including many African states, would weaken yet another channel through which Washington projects its influence across the globe. That the US is owning the current roster of reforms (some of which are laudable, for the record) is puzzling, especially since the obvious net beneficiary would be its geopolitical arch rival, China. Any decline in the World Bank’s relevance in low-income countries as a result of the reforms will come at a time when China’s stock of bilateral lending swamps those from the US and its Paris Club allies (see below).
Washington would be deluded if it concludes, like many American analysts publicly have, that the recent slowdown in financial flows from Beijing (and bailouts of BRI countries) means declining Chinese influence in low-income states. While the “debt-trap diplomacy” narrative in the West is misplaced, it is also true that China’s debtors have strong incentives to stay closer to Beijing — if only to ensure they get bailouts when needed and timely funding for more projects. Developing countries’ financial flows are already in the red vis-á-vis China. In this regard, China has joined high-income countries in Europe and North America as destinations of both licit and illicit net outflows from low-income countries.
It is instructive that African states basically disengaged from any serious discussion of the World Bank’s proposed roadmap for reforms. Many find the proposed reforms to be at variance with their real development priorities, which at the moment are debt (SDR reallocation, rethinking the G-20 Common Framework, global sovereign credit rating reforms, expanded IDA) and surviving the current multiple global crises without eroding the hard-won socio-economic gains of the last 30 years (with targeted infrastructure and social spending). However, their concerns are yet to be taken seriously by the Bank’s leading shareholders. This despite the fact that African countries, who constitute the largest share of iDA lending, would stand to lose the most from a Bank that focused away from poverty alleviation to global public goods and policy in middle-income countries.
Given the current menu of partners for potentially transformative investments in development, the World Bank will struggle for influence if it is perceived to be irrelevant to African states’ needs. As a corollary, this will erode a non-trivial channel of US influence in the region.
II: Of principals and agents
Does the US really influence low-income countries (including in Africa) through the World Bank? The simple answer is yes.
A common finding in Political Science research is that multilateral organizations like the World Bank and International Monetary Fund (IMF) often serve as agents of their dominant (Western) shareholders. This is not just because the US always appoints the president of the World Bank and Europeans the Executive Director of the IMF. The influence also shows up in these organizations’ personnel, operations, and policy prescriptions targeting low-income countries. Consider this from a 2021 paper:
… developing countries receive greater volumes of aid from the World Bank when they are aligned with the United States (Andersen, Hansen, and Markussen 2006) or when they themselves serve on the Board (Kaja and Werker 2010). Dreher, Sturm, and Vreeland (2009) show that temporary mem- bership on the United Nations (UN) Security Council causes a country to receive more World Bank projects. In addition, World Bank loans are disbursed faster before elections in countries that are aligned with the United States (Kersting and Kilby 2016), and disbursement is less dependent on macroeconomic performance (Kilby 2009). In short, politically important countries are able to secure more projects with larger, faster, and more reliable disbursements.
The influence goes beyond mere program approval and speed of disbursement. The paper empirically demonstrates that the World Bank’s policy conditionalities tend to reflect US interests.
We find that conditionality at the World Bank heavily reflects U.S. interests. Specifically, when countries vote more closely than usual with the United States in the UN General Assembly, they are required to enact fewer domestic policy reforms, and on fewer and softer issue areas. Our argument therefore corroborates a U.S.-centric view of World Bank governance, showing that the United States is so influential that its preferences pervade even highly disaggregated project-specific policy decisions.
The paper argues that the mechanism behind this pattern of policy influence is not necessarily direct. It is not the case that recipient countries lobby the US, or that the US directly leans on World Bank bureaucrats. Instead, it arises from either Bank staff creating programs that they anticipate will get the necessary votes by leading shareholders; or from staff (who are disproportionately Western or trained in the West) unconsciously projecting a US-centric understanding of policy and international affairs. World Bank staff live in the DC area, which likely shapes their worldview. In addition to the president, 25% of Bank staff are US citizens.
Overall, the US appears to have structural rather than instrumental influence over the Bank’s interactions with low-income states (read the whole paper here).
Interestingly, the data behind the paper’s findings cover a period over which the US appears to have downgraded the Bank’s importance (see Morris below). Since Bill Clinton no US president has bothered to attend Bank/Fund annual meetings. Ajay Banga, the incoming president, did not even get the courtesy of a White House announcement with President Joe Biden or Secretary Yellen. It is safe to say that the era of towering figures like Robert McNamara (of Vietnam infamy), who embodied American influence on the Bank and the globe, are well behind us.
The decline in the Bank’s significance from Washington’s perspective might explain the apparent inability to fully internalize the implications of the proposed changes at the World Bank. A Bank that is unable to prioritize and address low-income countries’ material developmental needs (through a reformed financing architecture) would also lose its policy influence (an important channel of US influence, as shown in the paper above).
The paper’s findings raise questions about the World Bank’s staff and leadership. Who do they consider to be their real principals? Do their understand the contexts and policy priorities of low-income states? Do the patterns reflect their training or socialization on the job? For the sake of everyone involved, the Bank should endeavor to meet the real development needs of low-income countries; and not reflexively externalize US-centric policy positions unencumbered by local contexts. Otherwise the institution will struggle to stay relevant in low-income countries — both as a financier and knowledge bank.