Barack Obama missed the chance to renew the World Bank’s global legitimacy, by failing to give up the American monopoly on its leadership. Donald Trump risks further weakening America’s influence on the global financial architecture by cutting the bank’s funding, as his so-called skinny budget proposes.
Reinforcing the world economy’s recovery is the top priority of central bank governors and finance ministers, who are gathering in Washington for the spring meetings of the World Bank and International Monetary Fund. But Mr Trump’s hostility to both Bretton Woods institutions, embodied by plans to cut the World Bank’s funding by $650m over three years, has shaken confidence.
Although tensions between Washington and the IMF are acute, the World Bank has the most to worry about. Ordinarily, Jim Yong Kim, its US-nominated president who last year was elected to a second term unopposed, would have used this week’s meetings to lay the groundwork for the first replenishment of bank capital since 2010. Given the signals from Washington, bank staff fear its most powerful shareholder will be in opposition, complicating the task of rallying support for the capital increase from others. For now, it is on hold.
The timing is unfortunate for the bank. Unless it increases its wherewithal it will have to halt its recent surge in low-cost lending just as emerging market borrowing costs look set to rise. This would mark a further retreat from its central development role.
It would also mark a further dilution of American soft power. This was already less effective under Mr Obama, whose imposition of Mr Kim over more qualified developing-world candidates weakened the bank’s credibility among poorer nations and drew US leadership into question. This provided more justification for China to usurp the bank’s role by launching competing institutions, such as the Asian Infrastructure Investment Bank.
Mr Trump has rowed back from his rhetorical hostility to other linchpins of the global rules-based system, softening, for example, his antipathy to Nato. It is to be hoped that he will do the same with the World Bank. It is an institution that needs reform, but emasculating it would only cede yet more ground to China.
The days when the US could explicitly dominate the World Bank may be drawing to a close. But the cheapest way of projecting power in any case is through consensus, where others pay in too. Multilateral agencies have the added benefit of disguising where true power lies. China has learnt that fast, and is drawing other nations into its own development financing initiatives. Mr Trump’s hostility to the World Bank threatens to move the US in the opposite direction.
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