The World Bank must improve accountability at its Executive Board

The skies are not marmalade and they are sometimes cloudy and gray

The World Bank (and the IMF) deserve criticism for opacity, lack of public consultation, and a general air of arrogance. The base of such criticism has, however, narrowed in the past 30 years, at least at the World Bank (WB). The WB has, since Jim Wolfensohn became its President in 1995:

·   Created (1996) the job of Country Director (CD) as the main decision maker on IBRD and IDA lending and research programs in single countries (e.g., Brazil) or in groups of countries (e.g., Senegal, The Gambia, Guinea Bissau, Cape Verde, Mauritania);

·   Decentralized^[1] Country Directors, and most of their technical and financial staff to the country offices, where they are empowered to do anything within the Bank’s mandate except approve loans, something which remains the job of the Executive Board;

·   Appointed many national staff, at all levels, to the country offices and given them responsibilities formerly held only by HQ staff;

·   Developed a modern financial management system;

·   Created new financial and technical instruments to allow greater responsiveness to national priorities;

·   Developed modern websites where anyone can find information on operations supported by IDA and IBRD^[2] including project documents and audits, and even showing project supervision reports.^[3]

·   Created Public Information Centers where citizens can access information about the World Bank and other development questions;

·   Diversified management and staff, at all levels, by nationality, race, and gender;

·   Commissioned independent opinion surveys in member countries across government and all groups of civil society and published the results;

·   Hired communications staff at HQ and in the country offices and supported their work;

·   Required consultations with civil society and development partners throughout the project cycle;

·   Created an independent Inspection Panel to investigate allegations of adverse project impact by affected groups;

·   Created an Internal Ethics Group to investigate allegations of internal corruption and abuse by Bank staff;

·   Required managers and other staff in positions of authority to make financial disclosures, and, in some cases, made those disclosures public;

·   Avoided, in part, the politicization of managerial and technical appointments, as is common in the UN and European agencies, though this is an area where the Bank could do much better; and

·   Fired Paul Wolfowitz, by far the least qualified of anyone to serve as Bank President.

A certain dishonesty in the Bank’s decision-making, notably at the Board of Executive Directors and within senior management, damages the Bank’s claims to transparency despite the undeniable achievements. I use the recent Kenyan debt restructuring to support that claim, with some reference to similar dishonesty at the Executive Board of the IMF.

The Government of Kenya (GoK) has, since 2021, had difficulty in paying its foreign debts.^[4] The Bank has extended US$3.7 billion in budget support projects (“Development Policy Operations”, known as DPOs) to help Kenya pay those obligations. Notably, a DPO in May 2023 operation lent US$500 million on IBRD terms and another US$315 million on hardened IDA terms; this total of US$815 million had a grant element of about 29%. The May 2024 package of U$1.2 billion (US$850 million on IBRD terms, US$ 300 million on IDA terms, and US$ 50 million as a grant) had a similar grant element. The Fund extended US$4.495 billion in net financing in the same period, giving an IDA/IBRD and IMF total of US$8.195 billion. The country amortized US$9.654 billion in foreign debt from 2021-24; in other words, IBRD, IDA, and the Fund paid 85% (8.195/9.654) of the principal due on Kenya’s external debt in the past 4 years. (The Kenya debt was re-financed at par, a subject to which I will return at some point).

Keith Hansen, the Bank’s CD in Kenya, gave the official view of ^[5] the May 2024 operation:

“The policy dialog around this DPO has helped to strengthen the macroeconomic framework, sustain an ambitious fiscal consolidation path, and tighten monetary policy. After tackling the immediate fiscal pressures, the focus can now shift to addressing the country’s longer-term challenges.”

The Chair’s summary ^[6] of the WB Board discussion of the May 2024 DPO reads:

“Directors supported the progress Kenya has made to promote inclusive growth and manage fiscal and debt vulnerabilities. They acknowledged the urgency to reduce Kenya’s vulnerability to climate change and welcomed the climate actions the country is taking to enhance access to climate finance. They also welcomed the reform efforts towards fiscal consolidation and liability management to alleviate liquidity challenges and boost Domestic Resource Mobilization. Directors welcomed the focus on gender in social safety net reforms while urging that the results framework highlight the impact of the program. Directors also encouraged increased focus on ensuring refugees and women benefit fully from the reforms supported under the Window for Host Communities and Refugees (WHR). Directors expressed support for the World Bank Group’s sustained engagement with the Kenyan authorities together with other development partners on critical structural reforms. Directors underscored the need for continued dialog with all partners, in particular the IMF.”

The most recent IMF Board discussion (January 2024) of the Kenya program was no more realistic than that of the Bank.

"Executive Directors agreed with the thrust of the staff appraisal. They positively noted the resilience of the Kenyan economy despite the ongoing fiscal and external adjustments in a challenging environment. While welcoming the authorities’ commitment to program objectives and the corrective actions taken, Directors noted that program performance has been mixed and called for strengthened implementation going forward. Noting the significant program risks, repeated augmentation requests and difficult market conditions, they underscored that a steadfast implementation of mutually reinforcing prudent policies and reforms, supported by contingency planning, capacity development, and effective communication, remain crucial to build market confidence, reduce poverty and sustain growth."

Directors of both institutions require anonymity while shoveling this manure because they know it is just as offensive as the real thing without having the same productivity benefits. No one really believes—anyone who does can write me here--that the measures approved by the Fund’s Directors in the 5th Review, or by the Bank’s Directors in the May 2023 DPO or in the May 2024 DPO, or in most other DPOs and Fund programs, will do anything to reduce poverty, to protect women from falling through the holes in the national safety net, or to accelerate “green growth”. Executive Directors and senior managers in both institutions prefer to read their lines under cover of darkness so they can pretend to their home constituencies that they are fighting poverty or whatever the local line happens to be.

One way to stop this nonsense—and these are not isolated examples--is to publish word-for-word accounts of WB and IMF Board meetings, including comments on projects sent before the Board meetings. Ending the anonymity around Board meetings would force members to say what they believe, assuming they have some notion of their own beliefs beyond lunch.

A second reason for lifting anonymity is to widen citizen access. Most people in the nations who own the IFIs have little idea of what is done in their names. It is true that a few interests within the shareholding countries—private banks or hedge funds or people named Larry--can bring pressure on EDs^[7]. That pressure, let us say, might be to insist on better terms for lenders facing default by sovereign borrowers. There is nothing wrong with this pressure if it is applied openly. Bank and Fund Directors work for sovereign governments and must respond to their interests. The problem is that the secretive conduct of the Boards favors the rich, who can call "their" Board members, and ignores the poor, who, if they want to be heard, must march in the streets where they risk being shot by other, less friendly, sovereign representatives.

A third reason is to force chairs to approve identifiable measures.

I voted to raise fuel taxes in Kenya

I voted to fund coal production in Indonesia

I voted to bail-out US and European banks in Argentina

I spoke against a national forestry plan in DRC

A fourth reason is to attenuate some of the conflicts of interest affecting Board members. One conflict is the risk of insider trading in emerging market (EM) debt.^[8] Inside information is valuable if an Executive Director^[9] knows that the Fund has agreed to a certain haircut on the debt of Kenya (Zambia, Suriname, Ethiopia, Ghana, Argentina, etc.) before the markets know. A smaller (larger) haircut will raise (lower) the secondary price, which generally trades below the price at which agreement is reached^[10] It is also valuable if the staff member knows that the Bank, and other concessional lenders, will provide a certain amount of up-front cash because such money reduces uncertainty about the secondary price at financial closure and gives lenders more confidence that any new instruments issued will eventually pay.

There is no accountability if Board anonymity persists. Without accountability, the inherent conflicts of interest in the asymmetry of IFI ownership will manifest as corrupt discourse, at the best, and corrupt operations, at the worst.

The following would improve transparency and accountability at the Boards of the World Bank and the IMF:

·   to make public all records of WB and IMF Board discussions and votes by name and constituency;

·   to publish detailed annual financial disclosures of Bank and Fund Board members and their staff, on the same annual schedules as Bank project audits (usually 6 months after the end of the calendar year);

·    to commission an independent agent to review the disclosures for unusual risks (e.g., high leverage in personal portfolios) with public disclosure of the reviews; and

·   to ban holdings of EM debt and crypto by Board members and their staff, and by management and staff of the Bank and the Fund; and

·   to forbid movement of EDs, or their staff, to Bank or Fund management jobs for two years following their Board service.

I expect wails of despair about how these measures will discourage « top people » from working for the Bank, how full reports of meetings will prevent Chairs from speaking honestly, and how financial disclosure is an “invasion of privacy”, usw.

As far as the top people go, the Bank and the Fund get thousands of job applications from well-qualified people. The Bank increased its candidate pools by many multiples in the past three decades by diversifying hiring and promotion. If some high-flyer cannot live with putting their personal financial data on the street, there are many others who can.

On “speaking honestly”, the argument might be that Chairs speak openly in private and in their comments on projects, so publishing their remarks, individual votes, and written comments might limit free expression. This is folly. Imagine the Bank or the Fund telling a borrower--“Look we trust you so completely that we will require no conditionality on this loan and in fact we will accept a handshake in place of a written Loan Agreement signed by your Minister”. What would the Boards say about that ?

Finally, on the supposed « invasion of privacy » … too bad. Work somewhere else.

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[1]. I started at the Bank in 1989 on Mexico, which was then the largest IBRD borrower. There was one HQ staff (a white European male) as Resident Representative in Mexico City with perhaps a secretary and a driver.

[2]. I am not sure about IFC.

[3]. Aides-memoires agreed during project supervisions and done jointly among the borrower, the Bank, and co-financiers had been the subject of allegations by NGOs that they contained secret clauses in violation of the official public agreements. Aides-memoires are generally now available to the public and do not contain secret clauses.

[4]. The GoK owes more to domestic banks than to foreign lenders, but the former are so deeply patriotic that they will accept arrears in lieu of payment, something that the WBG, the IMF and most foreign lenders will not do.

[5]. https://www.worldbank.org/en/news/press-release/2024/05/30/kenya-afe-new-financing-to-address-fiscal-pressures-and-accelerate-inclusive-and-green-growth

[6]. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://documents1.worldbank.org/curated/en/099053024154526892/pdf/BOSIB1ce68a2720319bc31e812262fb107.pdf

[7]. Makoff [Kindle, p. 284] shows how a brave platoon of ex-Clintonistas fought desperately to save US lenders to Argentina from penury.

[8]. There are many prominent cases of Board members or senior officials leaving the Fund/Bank to go into private banking or to represent consortia of private banks. Another risk is infrastructure finance where MDB participation can affect the terms of competitive bidding.

[9]. One of the Fund’s more dishonest practices is to send ED staff on Fund review missions. This was done generally to allow the EDs to spy on the missions and to pass information gained in that manner along to the Borrower.

[10]. I was WB task manager for the Côte d’Ivoire London Club deal in 1996-98. Ivorian debt was trading below US$0.10 before the provisional agreement was announced at about US$0.25 (November 1996). I sometimes got calls from traders of the form « Hey, John, just checking in to see you have heard anything on progress with the Ivory Coast debt deal ».