Biden gets chance to redefine World Bank role

The path ahead is littered with obstacles for the U.S.

The Biden administration will need to identify a leader with the ability to wrangle a giant bureaucratic institution. It will have to guide the bank’s other leading shareholders, including China, through an organizational overhaul to focus on climate concerns on a much larger scale. And an expanded climate change agenda might eventually require a substantial capital increase from the bank’s 189 member countries — a move that could prove difficult since it would require approval of the U.S. Congress, where Republican lawmakers have been critical of both the bank and the climate agenda.

What’s more, it’s no guarantee that the U.S. president will get to choose the next leader — and that the choice will be an American. That’s a tradition some other governments have begun to resist, especially since the position is expected to grow in importance as major shareholder nations push the bank to become a leader on global issues like future pandemics and cross-border conflicts, as well as climate change.

Whoever takes over will have to balance the agenda of the U.S., the bank’s largest shareholder, with concerns from other countries that fear a move away from the institution’s core mandates of fighting poverty and funding economic development projects within national borders.

“The world wants to move quickly, but we have to move in a way that builds consensus and recognizes that not all 189 members see the tradeoffs and the balance between global challenges and country-focused development in the same way,” said Masood Ahmed, president of the Center for Global Development, a think tank. “That’s what the job is going to be for the next president, how do you build a way forward?”

Malpass says he stepped down from his post voluntarily. But pressure from the Biden administration on the leader of the world’s top development organization over its climate agenda helped push him to the exit.

Treasury Secretary Janet Yellen in recent months repeatedly and publicly pressured the bank to deliver on reforms that aim to turn the institution into a climate finance powerhouse. The administration’s climate czar John Kerry, a leading contender for the job, has also urged the bank to do more.

Malpass, a former senior Treasury Department official who was appointed to the post by President Donald Trump in 2019, came under fire last September for comments in which he cast doubt on the science underpinning concerns about climate change. Those remarks were condemned by White House Press Secretary Karine Jean-Pierre, and he later walked them back, but it led to calls for fundamental reforms of the bank to speed financing of the transition to greener energy.

The remarks complicated Malpass’s position, but Yellen has also spoken positively about some of the World Bank’s climate initiatives during his tenure. The outgoing World Bank chief was recognized by the administration as being generally well-liked among the bank’s nearly 16,000 staff, and his response to the pandemic was held in high regard by member countries.

Still, Yellen has viewed the World Bank as a key linchpin for the global response to climate change.

“The world cannot afford to delay or lower our ambitions,” she said in a speech outlining her views last October. “The current challenges are urgent. That is why I, along with leaders from a broad group of countries, will be calling on World Bank management at the Annual Meetings next week to work with shareholders to develop a World Bank evolution roadmap by December. Deeper work should begin by the spring.”

“She’s calling for fundamental reform, and they’re going to start with the World Bank,” said Kevin Gallagher, director of Boston University’s Global Development Policy Center. “She charged the management to come up with the plan, knowing that a few months ago, the guy who is the head of it denied climate change.”

“This agenda is not his. It’s Janet Yellen’s,” he added.

A World Bank spokesperson pointed to Malpass’s public remarks on his resignation and declined to comment further.

Malpass, in media interviews following his announcement that he would step down by July, dismissed suggestions that he was forced out. He stressed that he left on his own terms. He also defended his climate record at the bank, noting that the institution delivered a record level of climate finance — $32 billion — in fiscal 2022.

“This is a good time for the transition at the bank and a good time for me personally,” Malpass said in an interview with Devex, a publication that covers the development sector.

One person close to Malpass said the differences between him and the Biden administration were “overblown.”

“I think he was tired of the job,” the person said. “The administration’s reform agenda is still pretty amorphous, so it’s not as if he was opposing specific policy preferences.”

Malpass showed support for the initiative, releasing a 20-page roadmap on the bank’s evolution, but experts said his mixed past on climate change didn’t bode well for a new vision for the bank.

“The process has been managed in a way where [Malpass] was able to save face enough to be able to exit gracefully,” said Jonathan Walters, a former senior World Bank official. “If he had been a climate leader he would have invigorated the institution behind climate. But he wasn’t, so he didn’t.”

Yellen, earlier this month, said the U.S. expected to see ideas “translated into action” over the next few months. The World Bank’s annual spring meetings it holds in conjunction with the International Monetary Fund in April is the next inflection point for the effort.

“[Yellen] and many others had expressed concerns about how he was performing in the role. And he made a decision that it would be in his and the institution’s best interest to move along at a time that could allow for a smooth transition over the months ahead,” said a former Biden administration official.

The job ahead will be a challenge for anyone who takes the helm. Divisions among member countries and within staff are emerging as the bank starts to move forward with its climate agenda. That includes cutting off new financing for projects that use fossil fuels and shift more toward renewables.

“Most of the World Bank staff who are not climate specialists did not believe the directive from the U.S. and EU against funding natural gas projects was productive,” said a person close to Malpass.

Two of the organization’s main branches, the International Bank for Reconstruction and Development and the International Development Association, did not invest in new fossil fuel finance in fiscal 2021, and the group has not financed upstream oil and gas projects since 2019.

The bank’s new roadmap has raised concerns that traditional efforts aimed at eliminating poverty and funding national development will be sidelined and the move toward climate-friendly projects will become an unfunded mandate for poorer countries.

There’s also fear that most of the climate financing will flow more easily into efforts to mitigate carbon emissions largely produced by wealthier countries rather than for initiatives to help poorer nations already struggling to adapt to the ravages of climate change.

Given the high hurdle of increasing the World Bank’s overall capital, two big challenges facing the next leader will be optimizing the bank’s balance sheets to get more bang out of the institution’s existing capital and mobilizing private capital more than five times greater than it currently is, said Masood of the Center for Global Development.

“There is a need to make sure that reform moves forward,” he said. “You can build consensus around the U.S. and G7 [countries] but the 189 members all need to be sufficiently bought into that.”