Who Rules the World Bank?

8 May 2007

Opaque, unilateral control over leadership selection highlights major flaws in the governance of the institution.

by Bruce Jenkins and Nancy Alexander, September 2005 

One of the world’s premier multilateral institutions – the World Bank – has 184 member countries, but only one, the United States, selects its President. In March 2005, the Bush Administration anointed Paul Wolfowitz – architect of the 2003 US invasion of Iraq and proponent of US preeminence[1] – to this critical post. Many countries and civil society organizations look to the US to work collaboratively to fight global poverty. By jealously guarding its prerogative and elevating Mr. Wolfowitz to this influential position, the US government has reinforced the perception that it views the World Bank primarily as a foreign policy tool to underwrite US geopolitical and economic interests.

The US prerogative of naming the President of the World Bank has its origins in the political and economic realities of the 1940s. Since its founding in 1944, the Bank, headquartered in Washington, DC, has by unwritten custom always had a US citizen at its helm. As power relations and institutional mandates shifted over the past six decades, the World Bank’s governance structure has stagnated. Reforms are urgently needed if the Bank is to strengthen its legitimacy as a transparent, accountable, 21st century multilateral institution that can effectively pursue a mission of poverty reduction.

Table 1. World Bank Voting Power and Board Seats

Country	Voting Share (%)	Directors
US	16.4	1
Other G-7	26.6	6
Other non-borrowers	18.2	7
Developing country borrowers	38.8	10

Source: Birdsall, Center for Global Development (2003, see note 20). Figures for IBRD.

A Vast Domain

The World Bank President rules over a vast domain. As the single largest source of development finance in the world – the institution committed over US$25 billion in 2004 – the World Bank has an enormous impact on the lives and livelihoods of millions of people, especially in the poorest developing and transitional countries. The President simultaneously heads the entire World Bank Group.[2] Over 10,000 staff members perform the work of the Bank, both at its headquarters and in over 100 country offices. The World Bank is the third largest employer in Washington, DC.

The Bank funds a vast range of operations, from projects – e.g., dams, roads, schools, hospitals, and irrigation systems – to structural adjustment programs that underwrite governmental reforms, such as those that liberalize and privatize economies. The expansion of reform conditionality in the 1980s and 1990s led to greater intrusiveness of the Bank in the affairs of borrowing countries, areas such as the rule of law, social policy, and governance. As Ngaire Woods notes: “[t]his new, wide-ranging domain of advice and conditionality directly affects a broader swathe of policies, people, groups and organizations within countries. Yet the IMF [International Monetary Fund] and the World Bank were neither created nor structured to undertake or to be accountable for such far-reaching activities.”[6]

No transparency, no democracy

“Less than a quarter of the current members of the IMF and World Bank were present when the institutions’ structures were crafted in the 1940s. … With the passage of time, the mismatch between the antiquated structures of multilateral institutions and their larger global environment has increased – and so have tensions.”– Devesh Kapur

Selection of the Bank’s President is based on an unwritten “gentlemen's agreement” reached when the Bank and Fund were created at the 1944 Bretton Woods conference: the US chooses the head of the World Bank while western European countries name the head of the IMF. “This prerogative was initially granted not only because the United States was the Bank’s largest shareholder but also because it was the key guarantor and principal capital market for Bank bonds,” Catherine Gwin notes.[7] US control, it was reasoned, would instill confidence on Wall Street to invest in Bank securities – a principal source of Bank funds. However, capital markets have long since gone global and the Bank has diversified its portfolio.[8] The Wall Street rationale for US control of the Bank’s top seat no longer exists.

While the world has changed dramatically over the last six decades, its “institutional grid” has not. As Devesh Kapur points out, “Less than a quarter of the current members of the IMF and World Bank were present when the institutions’ structures were crafted in the 1940s. Developing nations joined gradually over the years, but did so as rule takers rather than rule makers. … With the passage of time, the mismatch between the antiquated structures of multilateral institutions and their larger global environment has increased – and so have tensions.”[9]

Civil society groups recognize an urgent need for greater democratic involvement in and improved governance of global institutions.[10] Borrowing countries have argued for substantial reforms.[11] Even the Bank’s outgoing President James Wolfensohn noted the flawed nature of the Bank’s leadership selection.[12] However, despite pledges to the contrary, the US government pursued a highly secretive process for selecting the Bank’s next President: no disclosed criteria and qualifications, no lists of candidates, no process for concerned citizens to engage.[13] Leaks and rumors were the only way citizens could gain an idea of who would assume the reigns of this powerful multilateral institution.[14]

All past nominees have been US citizens with close ties to the then-current administration and/or Wall Street (see table 2). After the US puts forward its choice, it is a mere formality for the Bank’s Board of Executive Directors to officially approve the President to a five-year renewable term. The power of the US over the World Bank is augmented by the fact that the Bank President is also Chair of the institution’s Board.

Table 2: World Bank Presidents: White men with little development experience

World Bank President	Tenure, Citizenship, Gender	Previous Positions
Eugene Mayer	1946;U.S.;Male	Partner, Lazard Freres
John J. McCloy	1947-49;U.S.;Male	Assistant Secretary of War
Eugene R. Black	1949-63;U.S.;Male	Vice President, Chase National Bank
George D. Woods	1963-68;U.S.;Male	Board Chairman, First Boston Corp.
Robert McNamara	1968-81;U.S.;Male	Secretary of Defense
Alden Clausen	1981-84;U.S.;Male	CEO, BankAmerica
Barber B. Conable	1984-91;U.S.;Male	U.S. Congressman
Lewis Preston	1991-95;U.S.;Male	CEO, J.P. Morgan
James D. Wolfensohn	1995-2005;U.S.;Male	Executive Partner, Salomon Brothers
Paul Wolfowitz	2005-;U.S.;Male	Deputy Secretary of Defense

Source: World Bank

Good Governance Starts at Home

In recent years the World Bank has increasingly prescribed “good governance” and institutional reforms as core elements of its lending programs.[15] Clearly, the Bank – and the US government – would be well served to take some of its own medicine.

Selection of the President

In an ideal world, the US government would be part of a multinational search committee to identify job candidates capable of negotiating debt cancellation for poor countries and alleviating the plights of groups such as sweatshop workers, indigenous peoples, subsistence farmers and people with HIV/AIDS. Today, nearly half of the world’s population – 2.8 billion people – lives on less than $2 per day. Despite otherwise impressive credentials, past Bank presidents have often lacked experience with the problems of poor people. That needs to change.

Merit, not citizenship, needs to be the guiding principle in choosing the leader of the world’s premier development institution. The US should relinquish its hold on the presidential selection process and deliver a much-needed signal that it supports multilateral, cooperative approaches to global economic issues. The job of World Bank President deserves a genuinely competitive process among qualified candidates of any nationality. Restricting candidates on the basis of nationality is clearly discriminatory.

In 2000, the US vetoed western Europe’s first nominee to head the IMF amidst severe disagreements over the selection process.[16] The resulting conflicts led the Boards of the Bank and Fund to establish working groups to devise recommendations on leadership selection, among which were the following:

• Transparency and accountability are critical principles for the selection process.
• The Board, not one member country, should be in charge of the selection process.
• Candidates could be nationals from any member country.
• Clear criteria for identifying, nominating, and selecting qualified candidates should be established.
• An Advisory Group of eminent persons should assist in the selection process.[17]

Demonstrating a clear lack of accountability, western European countries ignored these recommendations in the 2004 selection of Rodrigo de Rato as Managing Director of the IMF. Not surprisingly, the US paid no heed to them in naming Mr. Wolfowitz.

At a minimum, the Bank and Fund’s most powerful members should renounce their antiquated, undemocratic hold over the top positions and support adoption of the institutions’ own recommendations to establish a modicum of legitimacy to leadership selection. Selection criteria, lists of candidates, and substantive records of Board deliberations on leadership appointments should be publicly disclosed.

Table 3: So Many Countries, So Little Representation

24 countries share one Board sear and possess just 3% of the vote (IDA)

Countries	Active Projects (US$m in 2005)
Benin	196
Burkina Faso	472
Cameroon	193
Cape Verde	53
Central African Republic	17
Chad	307
Comoros	13
Congo, Dem Rep. of	1332
Congo, Republic of	157
Cote D'Ivoire	n.a.
Djibouti	53
Equatorial Guinea	0
Gabon	0
Guinea	223
Guinea-Bissau	52
Madagascar	1030
Mali	478
Mauritania	272
Mauritius	12
Niger	260
Rwanda	272
Sao Tome and Principe	12
Senegal	661
Togo	0.3
Total	6065

Source: World Bank

More Equitable Representation

The shareholding nature of representation at the World Bank clashes at times with the Bank’s mission as a leading multilateral development institution. The countries with the most intensive relationships with the Bank have the least representation and voting shares. For instance, since sub-Saharan African countries hold only 5.4% of the voting shares on the World Bank’s Board, they have lacked influence over the 464 current Bank-financed projects in Africa. Moreover, when a single Board member represents two dozen countries with more than US$6 billion in ongoing projects, fair representation of the citizens of each country becomes impossible (see table 3).

Over the past three years member countries have discussed proposals for strengthening borrower country representation at the Bank, from expanding Board seats to reallocating votes to capacity building.[18] The US government has strongly opposed many of these proposals.[19] Such opposition is shortsighted as the quality and legitimacy of Bank decision-making would be improved through greater voice and participation of the citizens of countries most affected by Bank operations. The US government should move to strengthen representation of borrowing countries at the World Bank, building on the number of diverse proposals presented by the Bank, member governments, and outside observers.[20]

Transparency

Whereas the US has opposed changes to leadership selection and voting structure at the World Bank, it has been a leader in promoting transparency at the institution. Prodded by civil society advocacy efforts, the US government and Congress have pressed the Bank to disclose far more information about its operations to the public. This transparency is important because citizens in borrowing and donor countries have a right to information about Bank-financed operations being implemented in their own countries. After all, the Bank is a public, not a private, institution.[21]

The Bank’s Board of Directors operates behind closed doors – not a standard one expects from a public institution. Only in 2005 did the Board begin to release skeletal minutes of its meetings but these fail to provide citizens with enough information to understand the lines of debate and the positions of their government representatives. The Board already maintains extensive summaries and transcripts of its meetings. Substantive records of Board deliberations – with certain privacy considerations and exceptions for sensitive issues – should be publicly disclosed.

Citizens deserve global institutions that are transparent, accountable, and democratic. The intrusiveness of Bank programs into nearly all sectors of borrower country economies has significantly expanded the range of stakeholders who have legitimate interests in and rights to influence Bank operations. The choice of World Bank President is far too important to be left in the hands of a single country. Citizens have long rejected unaccountable, closed-door governance processes at the national level, and are increasingly demanding accountability at the international level. Multilateral institutions like the World Bank are overdue for a democratic overhaul.

Notes and Resources

[1] In 1992 Mr. Wolfowitz oversaw the drafting of a Pentagon post-cold war strategy that called for US dominance of the international system: “Our strategy must now refocus on precluding the emergence of any potential future global competitor.” See “U.S. Strategy Plan Calls for Insuring No Rivals Develop,” The New York Times, March 8, 1992, p. 1.

[2] The World Bank Group comprises five separate entities: the original International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC, established in 1956), the International Development Association (IDA, 1960), the International Centre for the Settlement of Investment Disputes (ICSID, 1966), and the Multilateral Investment Guarantee Agency (MIGA, 1988).

[3] Changes to the Articles of Agreement, for example, require an 85% special majority.

[4]  Since 1975 the leaders of the largest industrial democracies have met annually as the Group of 7 (G-7) to discuss major economic and political issues. Comprised of the US, Japan, Germany, Candada, Britian, France, and Italy, the G-7 often prescribes policy positions for the Bank and Fund. Voting power percentages cited for the IBRD. US voting share at the Bank’s concessional lending arm, IDA, has decreased to13.97% given recent increases in European contributions. The G-7 countries control 46.31% of the votes at IDA.

[5] A list of Executive Director offices with constituencies (World Bank website). ED contact information (BIC website) ontact information see /bicusa/issues/misc_resources/92.php

[6] Ngaire Woods, “Making the IMF and World Bank More Accountable,” International Affairs 77, no. 1 (January 2001), p. 89. Read articles by Ms. Woods on globalization and international institutions.

[7] Catherine Gwin, “US Relations with the World Bank,” in The World Bank: Its First Half Century (Vol. II) by Devesh Kapur, John P. Lewis and Richard Webb, Washington DC: Brookings Institution Press, 1997, p. 246.

[8] Bank bonds are now denominated in multiple currencies. Of the top ten Bank bond underwriters in 2000, only four were based in the US. See Kahler, Leadership Selection, p. 48.

[9] Devesh Kapur, “Who Gets to Run the World?,” Foreign Policy 121 (Nov/December 2000), p. 47.

[10] For example, see the IFI Democracy Coalition statement.

[11] For example, see the communiqués and papers by the G-24 at www.g24.org. During the IMF’s leadership selection fiasco in 2000, 11 borrowing country Executive Directors called for abandonment of the gentlemen’s agreement. See Kahler, Leadership Selection, pp. 30-42.

[12] “…I think it should be an open process, and the Board should be involved….” Mr. Wolfensohn did not object to the US prerogative. See James Wolfensohn, Press Briefing, April 14, 2005.

[13] US Treasury spokesman Rob Nichols told the Wall Street Journal that the selection process for Wolfensohn’s successor would be open, candid, and transparent, as reported in the World Bank’s Press Review for January 4, 2005.

[14] Even outgoing President Wolfensohn stated that he had to depend on the civil society created website www.worldbankpresident.org for information on potential successors. See http://www.worldbankpresident.org/archives/000070.php.

[15] See www.worldbank.org/wbi/governance/about.html#approach.

[16] The US did not challenge Western Europe’s prerogative to name the head of the IMF but the particular nominee. Conflicts among IMF member government’s led for the first time to the nominations of two non-European candidates, with a group of developing countries putting forth the senior American at the IMF, Stanley Fischer. The US supported Europe’s (Germany’s) second nominee and preserved the gentlemen’s agreement. See Kahler, Leadership Selection, pp. 30-42.

[17] See the draft joint report of the Bank Working Group to Review the Process for Selection of the President and the Fund Working Group to Review the Process for Selection of the Managing Director at http://www.imf.org/external/spring/2001/imfc/select.htm. Both Boards endorsed the report, but then stipulated that they did not formally adopt its recommendations, in effect nullifying their endorsement.

[18] See documents prepared for the Development Committee on ‘Voice and Participation of Developing and Transition Countries’ (World Bank website)

[19] A memo of the US Executive Director  outlined US opposition to changes in voting structure and expansion of the Board. Statement by Carol Brookins, “Issues Note: Enhancing Voice of Developing and Transition Countries at the World Bank,” (June 20, 2003) (authors’ archive).

[20] In addition to the proposals contained in the preceding notes, see proposals by civil society groups such as the New Rules Coalition, “Reform Proposals for the Governance Structures of the International Financial Institutions” (2002) at www.un.org/esa/coordination/ecosoc/Schroeder.pdf; Christian Aid, “Options for Democratising the World Bank and the IMF (2003)” at www.christian-aid.org.uk/indepth/0303options/intro.htm; Nancy Birdsall, “Why It Matters Who Runs the IMF and the World Bank,” Center for Global Development Working Paper No. 22, (table 1) updated October 2003, at http://www.cgdev.org/content/publications/detail/2768; and the Center for Global Development’s governance reform recommendations in “The Hardest Job in the World: Five Crucial Tasks for the New President of the World Bank” (2005).

[21] For a reference tool and analyses on transparency standards at the IFIs, see the IFI Transparency Resource.

This piece may be used freely, but the Bank Information Center and authors must be cited.