World Bank shareholders are gathered in Washington this week for their annual spring meetings, while the global financial institution is poised for new leadership that could change how it approaches climate and other global crises. Business executive Ajay Banga is expected to be confirmed as the bank’s president in the coming weeks.
Richard T. Clark is a political scientist who studies policymaking at the World Bank and the International Monetary Fund. Clark says Banga could push the World Bank to tackle climate change more aggressively in three ways, but that each approach carries risk.
Clark says: “The World Bank is at an inflection point – Ajay Banga is slated to take over for current President David Malpass, who has been labeled a climate-skeptic by some observers. Banga, who was nominated by the United States, faces pressure to reorient the World Bank’s lending portfolio to tackle climate change more aggressively. He could do this in several ways, but each has its pitfalls.
“First, he could ask member states, who fund the organization, for additional resources, but Janet Yellen – the U.S. Treasury Secretary – said the U.S. would not back such a move. Given that the U.S. is the bank’s largest shareholder, this makes a capital increase unlikely.
“A second option is for Banga to ease capital requirements by expanding the bank’s lending portfolio without additional funds from member states, but this could put the bank’s AAA credit rating at risk, especially given that many of the bank’s debtors are experiencing debt crises of their own, limiting their ability to repay future debt.
“Third, Banga could reallocate funds traditionally offered to developing countries for poverty reduction and physical infrastructure towards climate and clean energy initiatives – for instance, lending to middle-income countries to help them transition away from coal. Unsurprisingly, the world’s poorest nations oppose such a move since it limits their ability to draw on the Fund’s resources to promote growth. More generally, developing nations have long been frustrated with the fact that the World Bank is governed primarily by rich Western countries who may put their own needs ahead of those of the developing world.”
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Image by Franz Mahr/World Bank /Creative Commons license 2.0