Category Archives: IMF & WB

Focusing the World Bank on public goods

Arvind Subramanian says we should reorient the World Bank towards public goods:

It is awfully hard to find evidence that traditional World Bank–type aid works. In a series of papers, Raghuram Rajan, former chief economist of the IMF, and I were unable to find any positive effects of aid on long-run growth but did find evidence consistent with some of the negative effects of aid in depressing manufacturing exports and worsening domestic institutions.

On the other hand, it is widely accepted that some of the biggest contributions to development have come from global public goods such as the green revolution and medical breakthroughs, especially related to the development of antibiotics and vaccines…

India should rather put forward a new vision for the World Bank, with a central focus on global public goods, a point also emphasized and elaborated by Devesh Kapur, the author of the definitive history of the Bank. Nancy Birdsall of the Center for Global Development and I have argued that the governance structure for global public good activities should be quite different from current arrangements. This could be the thin end of the wedge for perhaps eventually breaking up the World Bank into two institutions: first, an aid agency devoted to traditional lending activities that could continue to be dominated by the G-7; and second, a new institution that focuses more on the creation of global public goods, one in which middle income countries such as India, China, and Brazil could start making greater financial contributions and, in return, obtain commensurate power and influence.

China attacks the dollar's reserve-currency status


China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.


For decades, the dollar has been a convenient medium of exchange for everyone from a central bank seeking to buy U.S. Treasury bonds to a business exporting commodities from Latin America to Asia.

To jump-start a new global reserve currency, economists say, would require someone effectively subsidizing the cost of bringing buyers and sellers together for the time it takes the currency to gain traction.

Large, deep, and highly traded markets involving a particular currency “don’t spring up spontaneously just because the Chinese central bank governor suggests this would be a good idea,” says Barry Eichengreen, an economist at the University of California at Berkeley…

In his essay, China’s Mr. Zhou proposed expanding the role of “Special Drawing Rights,” or SDRs… The SDR is “basically the Esperanto, at best, of international currencies,” says Jeffrey Frankel, an economist at Harvard University, referring to the ill-fated attempt to create a common language. “It’s not at all used.”

Should the World Bank name and shame its own?

Per Kurowski on the World Bank’s fight against corruption:

[P]lease search out INT on the external website of the World Bank and then click on the list of Debarred Firms and Individuals. On that list you will find, duly named and shamed, the names of many individuals that one way or another after a due process have been considered involved in corruption, but that list does not include one single name of those officers of the World Bank that presumably must also have been involved in these acts of corruption one way or another. Susanne Folsom the Director of INT, on a Q&A session on that same site mentions, “We’re often asked why we don’t publicly name Bank staff who are terminated for fraud and corruption as well. The Bank’s rules don’t allow such disclosures….” What credibility can you get naming others while not being willing to name your own?

Suggestions for the IMF

Andres Opennheimer writes:

There would be dozens of qualified candidates for the top IMF job from emerging countries, who would not make anybody nervous in the U.S., German or British treasuries.

Among others: former Mexican President Ernesto Zedillo; former Brazilian Central Bank President Pedro Malan; former Argentine Central Bank Gov. Mario Blejer; India’s planning minister, Montek Singh Ahluwalia; or the former chairman of Poland’s National Bank, Leszek Balcerowicz.

Any of them would be a more credible broker of future financial crises, a more even-handed monitor of the world economy, than Sarkozy’s candidate.

Progress at the IMF?

An editorial (in French) from Wal Fadjri, a Senegalese newspaper, calling for rejection of the EU’s nominee for IMF managing director, Dominique Strauss-Kahn:

As a matter of principle, Africa should challenge the gentleman’s agreement between the U.S. and Europe, whereby the head of the IMF is a European and the head of the World Bank an American. This longstanding divvying-up of these positions-which is no longer justified-is outdated and should simply be abolished. The IMF is not France’s monopoly, even if it has managed it for 32 of its 52 years, and the IMF’s antidemocratic, despotic, medieval, and feudal constitution needs to be amended.

And the IMF is hit with English-language criticism by AEI’s Desmond Lachman:

The need for a serious external evaluation of the IMF and the World Bank would appear all the more pressing now at a time that both of these institutions need to restore their tattered credibility. The IMF is yet to shake off its many missteps during the Asian and Latin American currency crises some ten years ago, while the World Bank is presently reeling from its two years of mismanagement under Paul Wolfowitz’s leadership. And the continued practice of dividing the leadership of the World Bank and the IMF between the Americans and the Europeans has hardly done anything to restore the legitimacy of those institutions, especially among the Asian emerging market economies, whose weight continues to increase in the global economy.

How timely it would be to have an external evaluation of these institutions now on the eve of new management taking charge, when serious questions should be asked as to the correct long-term course that these institutions should be charting.

CGD’s Dennis de Tray is pleasantly surprised to see some progress:

Last Friday the IMF board announced that it would accept nominations… a first and essential step in opening up the process of selecting the IMF leader…

The announcement is a welcome if slightly amazing turn of events. I’ve worked at both the IMF and the World Bank, and came away from my Fund experience thinking this was an institution with an almost pathological aversion to change…

Does this announcement guarantee that the best man or woman will get the job? No, but it is a critical signal that at least some of the world’s leading nations understand that business as usual in the governance of the world’s premier international organizations is just not on.

Strauss-Kahn is still expected to win the post.

The IMF and WB in Africa

Ha-Joon Chang has a new book promoting protectionism, titled Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. In an article in this month’s issue of Prospect magazine (hat tip to Pablo), he writes:

As for Africa, its per capita income grew relatively slowly even in the 1960s and the 1970s (1-2 per cent a year). But since the 1980s, the region has seen a fall in living standards. There are, of course, many reasons for this failure, but it is nonetheless a damning indictment of the neoliberal orthodoxy, because most of the African economies have been practically run by the IMF and the World Bank over the past quarter of a century.

While I agree that the IMF and the World Bank haven’t done a great job, I think it’s wrong to portray them as the caretakers of Africa and the institutions responsible for its disappointing growth rates. They’ve never had that much power, and I’ve never seen another academic suggest it. Research on African economic performance has focused on institutions and geography. As Paul Collier summarizes (pdf):

Africa’s growth failure has attracted competing explanations. During the 1980s the World Bank diagnosed the problem as inappropriate economic policies, Berg (1981) offering the
first clear statement of this position. Bates (1981) was the first to explain these dysfunctional policy choices in terms of the interests of powerful groups, notably the taxation of export agriculture. During the 1990s the limited response to reform induced a broader search for explanations (Collier and Gunning, 1999, 1999a). Recently three further explanations have gained currency: institutions (Acemoglu et al., 2001), leadership (Jones and Olken, 2005), and geography (Sachs, 2003).

Is there any academic research that concurs with Chang in blaming the IMF and World Bank for Africa’s disappointing growth?

Petition to reform WB & IMF leadership selection

In the wake of Paul Wolfowitz’s troubles, New Rules for Global Finance is collecting signatures for a petition supporting reform of the selection of World Bank and IMF directors. It concludes:

We therefore call for timely adoption of reform of the selection procedures at both institutions. We recommend as an initial constructive step that European governments and the U.S. administration publicly state that the 1940s convention should be jettisoned and commit themselves now to reformed selection procedures whenever new leadership choices have to be made for either the World Bank or the IMF.

More info here. Signatures due by Monday afternoon.