Hovering over\u00a0the annual International Monetary Fund\/World Bank meeting in Lima, Peru, were the China-inspired Asian Infrastructure Investment Bank (AIIB) and New Development Bank (or \u201cBRICS Development Bank,\u201d as it was originally called). Will these new institutions behave like the World Bank or the more conventionally \u201cbank-like\u201d European Investment Bank (EIB)? Above all, will they be vehicles to promote \u2013 or, paradoxically, constrain \u2013 China\u2019s interests?<\/p>\n
Devesh Kapur writes” \u00a0The reality is that over the next decade, these new institutions will not be huge lenders. The paid-in capital of each is $10 billion; so, even with an equity-to-loan ratio of 20% (the current floor for the World Bank), each will be able to lend only about $50 billion \u00a0\u2013 not chump change, but hardly a game changer \u2013 unless they \u201ccrowd in\u201d substantial private investment. What matters is that the larger emerging markets are putting substantial capital into institutions that will be dominated by China \u2013 an indication of how frustrated they are with the World Bank and the IMF.<\/p>\n
In the 2015 financial year, the EIB lent more than twice the amount provided by the Bank, but with one-sixth the staff. Whether measured by flows (loan disbursements) or stock (loans outstanding), the World Bank is massively over-staffed.<\/p>\n
When the Bank was formed, the key governance mechanism was a resident Board of Directors that reported to a Board of Governors. \u00a0Over time, new offices proliferated.<\/p>\n
Most of this bureaucratic growth was the result of pressure from developed countries.<\/p>\n
The Bank\u2019s extreme risk-averse culture reflects a rational response to critics who make a huge fuss about every project or program failure. Critics who take failures in commercial projects in stride find the Bank sloth-like compared with the private sector and become indignant when its projects fail. Yet, instead of making the case that risk is intrinsic to economic development and developing a risk-balanced portfolio of projects (and loans priced accordingly), the Bank pretends that it can be infallible. As a result, the best has become the enemy of the good.<\/p>\n
Risk aversion has gone hand in hand with skewed institutional priorities, as is evident in the Bank\u2019s budget. In the 2015 financial year, $623 million was allocated to \u201cClient Engagement,\u201d while nearly 1.5 times that amount, or $931.6 million, went to \u201cInstitutional, Governance & Administration\u201d (the remaining $600 million, for \u201cProgram and Practice Management,\u201d is ostensibly for supporting lending operations). Expenses for the Executive Board alone were $87 million. The Bank loudly proclaims the virtues of research \u2013 and then spends almost as much \u2013 $44 million \u2013 on \u201cExternal and Corporate Relations.\u201d \u00a0The Future of the World Bank<\/a><\/strong><\/p>\n Hovering over\u00a0the annual International Monetary Fund\/World Bank meeting in Lima, Peru, were the China-inspired Asian Infrastructure Investment Bank (AIIB) and New Development Bank (or \u201cBRICS Development Bank,\u201d as it was originally called). Will these new institutions behave like the World … Continue reading ![\"Future](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2015\/10\/Future-of-World-Bank.jpg\")
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