Saturday, 31 March 2012

Goodbye World Bank, Hello BRICS Bank

US President Obama has nominated Jim Yong Kim, an American health expert, to lead the World Bank when (the very able, thoughtful and innovative) Robert Zoellick ends his tenure in July this year. The two other nominees are proven development experts with an outstanding curriculum in terms of proven leadership as ministers and of international organisations: Ngozi Okonjo-Iweala, Nigeria's finance minister, and Jose Antonio Ocampo, Colombia's former finance minister.

Whatever the merits of Mr Kim, the nomination of yet another US national in times of Shifting Wealth is another proof of Mr. Obama's denial of American decline. That denial will backfire and weaken the World Bank.

Loans Outstanding ($bn), 2010

Source: BBVA Research

With its soft-loan arm IDA, the World Bank is still the most important multilateral lender to poor countries, far ahead of the regional development banks. But the Bank's loan portfolio is not so much bigger any longer compared to that of China Development Bank or BNDES, Brazil's development bank.

The BRICS summit held in New Dehli this weak decided to create a common development bank that would clearly rival the World Bank. The final decision has been withheld this week, probably also to give the US and their Western allies time to rethink Kim's nomination. If the West insists on Kim, the BRICS will go ahead with starting their common development bank. This will intensify the ongoing Balkanisation of multilateral development lending, increase multilateral donor fragmentation and incentivise bilateral development bank lending further.

As pointed out by BBVA Research Emerging Markets in their "Eagles Flash" of 30th March, China is the only BRICS country that has a net external net investment position. It is the world's second largest net creditor, just behind Japan. This would mean that China will contribute the major part of funding to the new BRICS bank. The BRICS bank would help China to extend its influence in the developing world and stimulate demand for its goods and services, without appearing upfront.

It is very likely that the West, notwithstanding all its declamatory governance rethoric and conferences it is becoming infamous for, will not get past its enshrined hypocrisy. Mrs Ngozi Ikonjo-Iweala, who would also be the World Bank's first female President ever (Mrs Clinton: lost your gender zeal here?) is under no illusion: 

“I would really hold the Bretton Woods shareholders to their word, that they want to change the way business is being done and want a merit-based, open and transparent process for the presidency,” Ms Okonjo-Iweala told the Financial Times.
“I just want to see whether people just say things with their mouth that they don’t mean and what’s the level of hypocrisy,” she said in an interview. “So we want to test that.”


  1. I really thought that of all of the American Presidents, Obama might have been the one to take the step towards nominating someone from outside the US. Imagine what a statement it might have been for example if he would have nominated a top Brazilian economist or finance official? The end if nigh for western dominance over the Bretton Woods institutions.
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  2. Let's hope that it's nigh, indeed.