With its $57 billion aid portfolio, muddled objectives and failure to contain corruption, a decade of reform efforts have done little to fix the World Bank
It’s presidential inauguration time in Washington. Not for the person who will helm the federal government—that comes in six months—but instead for Dr Jim Yong Kim, the man taking the reins of an organisation even more lumbering, and far less accountable: The World Bank.
With 188 member countries and an army of 9,000 employees and consultants, Kim will lead one of the world’s most powerful institutions—charged with saving the world’s poor—but also one of its most dysfunctional. It is an endlessly expanding virtual nation-state with supranational powers, a 2011 aid port- folio of $57 billion and little oversight by the governments that fund it. And—according to dozens of interviews over the past few weeks, atop hundreds more over the past five years, plus a review of thousands of pages of internal documents—problems have gotten worse, not better, at the World Bank despite more than a decade of reform attempts.
Kim, the Dartmouth College president tapped by President Obama to lead the bank, stands little chance of fixing things, say insiders, unless he is prepared to completely revamp the current system. “The inmates are running the asylum,” says a former director.
Part of the problem is philosophical: No one, starting with outgoing president Robert Zoellick, has laid out an articulated vision for what the World Bank’s role is in the 21st century. For example, economic superpower China remains one of the bank’s largest and most valued clients, even as it doles out development money to other countries and bullies the bank from aggressively investigating corruption.
Part of the problem is structural: Internal reports, reviewed by Forbes, show, for example, that even after Zoellick implemented a budget freeze some officials operated an off-budget system that defies cost control, while others used revolving doors to game the system to make fortunes for themselves or enhance their positions within the bank. Why not track all the cash? Good luck: Bank sources cite up to $2 billion that may have gone unaccounted for recently amid computer glitches.
Sadly, the last part is cultural: The bank, those inside and outside it say, is so obsessed with reputational risk that it reflexively covers up anything that could appear negative, rather than address it.
Whistle-blower witch hunts undermine the one sure way to root out problems at a Washington headquarters dominated by fearful yes-men and yes-women, who—wary of a quick expulsion back to their own countries— rarely offer their true opinions.
Zoellick declined to speak with Forbes for this piece, though that’s not surprising. I’ve covered the bank for the past five years and have been ritually denied access to anyone in a mid-to-top-level post. The blockade ended just before Forbes went to press, when the bank conducted a carefully monitored conference call with two staffers who run the global “Open Data” initiative. The bank’s media relations spokesman was permitted to be quoted by name. That this is considered openness epitomises the problems that Kim now inherits.
Like most out-of-control bureaucracies, the World Bank started with lofty and idealistic goals. Facing a planet in ruins near the end of World War II, it was created along with the International Monetary Fund at a conference of leading Western economists trying to find ways to address the economic instabilities that they believed led to war—and to guarantee it would never happen again.
Having successfully helped rebuild Europe and Japan, the World Bank eventually expanded into a truly global agency, notably in the 1970s under the leadership of Robert McNamara, who took on the goal of a poverty-free planet in his search for redemption after his role in the Vietnam War. Donor nations fund the bank with billions of dollars annually, which it then doles out to fight poverty worldwide.
In terms of its governance, the World Bank has always operated under a gentleman’s agreement that allows the US—its largest shareholder with 16 percent of the vote—to pick its president, while the other 187 member-governments flow into a 25-member board. The process for its funding, grants and loans is absurdly complicated, but in essence it combines capital from its donor countries, plus self-generated income through the sale of bonds.
While often confused with the IMF, which provides financial stability to govern- ments, the World Bank’s role is at least supposed to be only development projects—like building dams, roads, schools, even fish farms—although it has muddied those boundaries over the last 20 years. Unlike the IMF, the bank deals with both the public and private sectors, and as the number of projects and amounts of money have escalated, so has the mischief, corruption and cover-ups, since no agency has the power to audit them.
In 2005 George W Bush tapped Paul Wolfowitz as president to clean the place up. To his credit, Wolfowitz made rooting out corruption his primary mission. But the former Pentagon official also came in like an occupying power. According to internal documents obtained by Forbes, the board and Wolfowitz engaged in a game of trench war- fare so vicious that the minutes of some board meetings had to be sanitised to keep the world from knowing what was really going on.
Perhaps Wolfowitz’s heavy-handed style would have eventually paid dividends. He did, after all, declare war on the bureaucracy. But he also fell prey to the insular culture, giving his girlfriend at the bank special considerations that undercut his credibility and led to his resignation.
So in came Zoellick. He had a stellar resume, serving as the US trade representative, an assistant Treasury secretary and deputy secretary of state. Joining the bank in 2007, he immediately calmed the waters. Facing a global food crisis, followed by a financial crisis, he shovelled loans out the door at record levels to help keep the world’s poorest from being buried alive. He then turned around and sought—and last year received—healthy financial increases from the bank’s member countries.
The bank argues that it makes money from lending to the BRICs, which allows it to lend still more money to the poorest nations. In a 2006 study, however, Lerrick drilled down into the bank’s books and found real annual losses of $100 million to $500 million per year on its loans—although accounting manoeuvres painted a rosier picture of the financials. It’s hard to believe the situation has improved in the wake of the financial crisis.
One possibility could be that it was massive hacking—an incessant problem at the bank. Another explanation is that it was simply “Computers Gone Wild”—perhaps the IT network on its own playing a game. Others suspect the explanation may be more nefarious. One thing for sure: It eroded confidence in the World Bank’s controls. Zoellick’s hands-off management style didn’t help, either. He delegated most day-to-day functions to a deputy, Caroline Anstey, as well as delegating to her and two others the chairing of most board meetings—which is normally the function of bank presidents.
(This story appears in the 03 August, 2012 issue of Forbes India. To visit our Archives, click here.)