30 October 2007
Robert Zoellick’s first World Bank annual meeting passed with little fanfare or flak – a marked contrast to the boisterous semi-annual meeting in April, when the pressure on his predecessor, Paul Wolfowitz, to resign reached a fever pitch.
If one headline could sum-up the World Bank's main message at its October 20-22 Annual Meetings, it might read, "With Private Sector at the Helm, World Bank Gears Up to Fight Climate Change and Boost Funds for the Poor."
While the agenda of the institution's Spring Meetings this past April was completely overtaken by the scandal surrounding then Bank-president Paul Wolfowitz, issues actually trumped personality at the most recent meetings. Climate change, the private sector and funding for the Bank’s low-interest loans, not Mr. Zoellick himself, were the focus of the three-day official gathering of the institution's governors, finance ministers and central bank heads from the Bank's 184 member countries.
New Funding Sources for IDA
In the run-up to the Annual Meetings, Zoellick had been conducting an aggressive campaign to raise donor contributions for the International Development Association (IDA). IDA, which provides low-interest loans and grants to the poorest countries, is up for its tri-annual replenishment, and Zoellick is taking every chance he gets to make a pitch for more donor dollars. In his under 30 minute speech at the National Press Club on October 10th, he managed to mention the IDA replenishment no less than 17 times as he rolled out his strategic vision for the entire Bank.
But as he extends the begging bowl to IDA’s usual funders, rich governments, Zoellick is looking to fresh sources of funds. Other arms of the Bank will cross-subsidize IDA with $3.5 billion of their own profits: $1.75 billion from the best-known part of the World Bank, the International Bank for Reconstruction and Development (IBRD), which lends mostly to middle-income governments, and $1.75 billion from the International Finance Corporation (IFC), which makes loans and investments in private-sector projects.
What most startled Bank-watchers, however, was Zoellick’s acknowledgment, in response to questions from reporters, that the Bank is also considering soliciting private companies for contributions to IDA. Such a move would be unprecedented.
This new fundraising strategy has placed the private sector more squarely at the center of the institution than ever before. Few of the Bank's long-time critics would view this as a new phenomenon, but many might be surprised at how overtly Zoellick is courting potential business alliances. While the prospect of the IFC becoming a substantial IDA funder has already raised some concerns, the idea of corporate donors is still sinking in. It has yet to be approved by the Board of Directors, it is already starting to kick up considerable controversy. Company donations would raise critical questions about whom IDA is accountable to, and could even cast doubt IDA’s status as a public institution.
Questions have been raised, too, about whether large IFC contributions would make IDA even more responsive to private-sector agendas in the most impoverished countries, likely at the expense of bolstering government capacity. Some also suspect that making IDA's future survival dependent on IFC profits could be used to deflect the growing criticism of IFC's failure to demonstrate the development benefits of many of its investments, particularly those in the extractive industries. As IFC Vice President Lars Thunell made clear in his yearly audience with civil society representatives at the Annual Meetings, the institution still refuses to publicly report on the development impacts of its individual projects.
Positioning the Bank for the Climate Controversy
Extractive industry projects, which often have significant adverse social and environmental effects, are among the IFC's most lucrative. It may not be surprising, then, that the IFC continues to finance oil and gas projects, even as the Bank Group tries to remake itself as a leader in the fight against climate change.
Indeed, the loudest buzz at the Annual Meetings was about climate. Numerous dialogue sessions with civil society groups addressed the issue explicitly, and at almost every other event, Bank speakers seemed to find a way to weave climate, and particularly carbon finance – the trade in pollution credits – into the debate. The official government delegates to the meetings held special sessions focused on addressing climate issues and the future role of the Bank Group in mitigating climate change and helping countries adapt to inevitable consequences of the global crisis.
While the Bank Group highlighted an increase in its funding for renewables and energy efficiency between 2006 and 2007, their statistics mask the fact that alternative energy projects remain a relatively small portion of the public institution's overall energy portfolio. According to the Bank's progress report on its "Clean Energy Investment Framework," in fiscal year 2007 (FY 07), 40% of energy lending was for “low carbon” projects. The remaining 60%, one could conclude, went toward “carbon intensive” projects.
Also in FY 07, energy efficiency projects only amounted to $262 million out of a total $3.6 billion in energy lending. This means that less than 10% of the World Bank Group’s energy lending for the year supported energy-efficiency projects, despite the fact that it is widely recognized as the most cost-effective way to reduce greenhouse gas emissions.
IMF Awaits New Directions
For the Bank's sister institution, the International Monetary Fund (IMF), the recent meetings were also without fireworks, even though they marked the end of Managing Director Rodrigo Rato’s tenure, with Dominque Strauss-Kahn scheduled to assume the position on November 1. Despite contentious debates on the Fund’s lack of legitimacy due to its under-representation of developing country members on the board, no decisions were taken on proposals for reform of the Fund’s governance structure or leadership selection process. While the IMF faces a mounting crisis of relevance and continued internal financial woes, the recent meetings failed to identify exactly how the IMF will address these challenges.
For more information on the Annual Meetings and summaries of select events, see Bretton Woods Project's website