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7 August 2012

An ethical bank?

The World Bank tries to reinvent itself.

By Christopher Alkan

The World Bank – the globe’s largest anti-poverty agency – has a new chief. Jim Yong Kim, an activist doctor whose five-year term began on 1 July, will have his work cut out for him. Running the 9,000-employee development powerhouse has always been one of the toughest jobs in the world, and a successful bank chief must be in almost equal measures a diplomat, financier and intellectual.

How to lift people out of poverty – the Bank’s main mission – remains one of the enduring mysteries of modern economics. A vast body of research and experience fails to provide any simple lessons. Like his 11 predecessors as Bank president, Kim will need considerable diplomatic poise. The organisation has 188 member nations all wanting a say in how it works. With a loan book of roughly $200bn, it is a formidable financial institution. Last year alone it committed $57bn to developing nations.

As if this were not challenge enough, the World Bank has gone through something of an identity crisis in recent years. Not long ago it was the biggest single source of lending for many poor countries, funding everything from massive dam and road projects to health and education plans. Recently, however, some of its most reliable clients – notably China and India – have become less reliant on its largesse. Meanwhile, the World Bank is left with crisis-ridden states like Sudan and Haiti, some of the hardest nations to assist. As its financial importance shrinks, the World Bank has needed to forge a new role.

At the heart of the Bank’s soul searching is a surprising statistic. Despite a global recession and surging food prices, poverty has been falling in all parts of the globe for the first time since the World Bank started collecting figures in 1981. In 2010 the number of people living on less than $1.25 a day – the Bank’s definition of extreme poverty – was about half the level it was in 1990. As a result, the world hit the United Nations’ target of halving poverty between 1990 and 2015 five years ahead of schedule. The share of the world’s population below the poverty line has plunged from 43 per cent in 1990 to 22 per cent in 2008.

The biggest progress has been made in China. This nation alone has managed to lift 660 million out of poverty since 1981. But China is not the only nation to be making economic progress. Developing nations through Asia, Africa and Latin America have been enjoying far faster rates of economic growth. “The reward has been ready access to international capital markets, which has meant that World Bank money is less important,” says Claudio Loser, a former director of the Western Hemisphere for the International Monetary Fund. Last year the Bank’s net funding for middle-income countries, such as Turkey, was a mere $8bn. That compares to $910bn in private inflows into emerging markets in the same year, according to the Institute for International Finance.

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 Dr Kim takes over an institution in flux. Its financial heft has failed to keep pace with expanding global capital flows. It is also less likely to be able to boss poor nations around than it did in the past. Nonetheless, the Bank remains the globe’s leading source of expertise on development. While extreme poverty appears to be retreating, over 2bn people still struggle to meet their basic needs. A dynamic World Bank is as necessary as ever.

This article can be read in full in economia.


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