New research has found that World Bank leaders are using their positions to channel funds to their home countries.
“The Executive Board is used as a platform to channel more or greater bank loans and grants to the home countries of the directors … during [the] years when they have a seat on the board,” accused Ashwin Kaja and Eric Werker in their research study titled “Corporate Misgovernance at the World Bank,” published by the Harvard Business School’s Working Knowledge (WK), a Harvard University faculty research publication.
Serving on the board of directors at the International Bank for Reconstruction and Development (IBRD) doubles funding opportunities for the board members’ home countries by about $60 million, the study found.
Countries with designated World Bank officials who are not elected to the IBRD’s board of directors often can’t achieve such windfalls.
The IBRD board of directors (whose members are chosen every two years among member states) governs its institutions. The IBRD has 24 executive directors of which 5, chosen by the United States, Japan, Germany, and France, are the largest shareholders. The Bank’s other members elect the remainder.
An executive director serves a two-year term and is responsible for a specific group of countries. They also function as directors for the International Development Association (IDA) and the International Finance Corporation with only one requirement—the country that elects them must be a member of the IDA.
“If board membership were egalitarian, with all countries having the opportunity to serve on a regular basis, our findings might not be [as] troubling,” WK researchers wrote.
The researchers are concerned that such conflict of interest issues are not singular to the World Bank, but may also pose problems at similar institutions under the auspices of the European Union, the International Monetary Fund, multilateral development agencies, and institutions with similar mandates.
“Overall, the World Bank is quite well run—the issue is one of misgovernance, not malfeasance,” the report said.
In short, violation of ethical principles by the actions of the IBRD board of directors is an issue that affects investors who do not have a chance to be elected to the board.
“In an aid organization, however, the cost of misgovernance are borne not by the investors but by the citizens of poor countries in terms of fewer new health clinics, schools, or technical advisors,” the researchers explain.
The WK experts take exception when it comes to the IDA. Serving on the IDA board of directors does not bring more funds for a country. The probable reasons are the “difference in their missions and funding policies.” The IDA apportions funds based on a formula that has been in existence since 1977.
“This shows that a strong sense of humanitarian mission, as well as more explicit instructions for who can receive funds, may mitigate the governance problems that arise from limited representation,” Werker said during an April interview published by WK.
Donor countries, such as the United States, Japan, and France reward friends or those they need to support a political decision or a vote in favor of a special issue, instead of the countries with the greatest need, said Werker.
Werker suggests that currently no remedy to the inequities exists.
“We need to first assess the damage and study the patterns before crying out for any fundamental changes.”
Transparency and publication of fund allocation could be a possible solution. This would show non-board member countries the one-sided allocation of funds. As a result, a reckoning would ensue, which could eliminate existing practices in the future.
The World Bank was originally created in 1944 to facilitate reconstruction after World War II. The bank’s mission still includes the original directive, but was expanded to reduce worldwide poverty.
The IBRD’s mission is to assist middle-income, creditworthy, but poor countries. IDA assists poverty-stricken countries, whose citizens live below the poverty line or are considered too great a risk for lending institutions.
“The Executive Board is used as a platform to channel more or greater bank loans and grants to the home countries of the directors … during [the] years when they have a seat on the board,” accused Ashwin Kaja and Eric Werker in their research study titled “Corporate Misgovernance at the World Bank,” published by the Harvard Business School’s Working Knowledge (WK), a Harvard University faculty research publication.
Serving on the board of directors at the International Bank for Reconstruction and Development (IBRD) doubles funding opportunities for the board members’ home countries by about $60 million, the study found.
Countries with designated World Bank officials who are not elected to the IBRD’s board of directors often can’t achieve such windfalls.
The IBRD board of directors (whose members are chosen every two years among member states) governs its institutions. The IBRD has 24 executive directors of which 5, chosen by the United States, Japan, Germany, and France, are the largest shareholders. The Bank’s other members elect the remainder.
An executive director serves a two-year term and is responsible for a specific group of countries. They also function as directors for the International Development Association (IDA) and the International Finance Corporation with only one requirement—the country that elects them must be a member of the IDA.
“If board membership were egalitarian, with all countries having the opportunity to serve on a regular basis, our findings might not be [as] troubling,” WK researchers wrote.
The researchers are concerned that such conflict of interest issues are not singular to the World Bank, but may also pose problems at similar institutions under the auspices of the European Union, the International Monetary Fund, multilateral development agencies, and institutions with similar mandates.
“Overall, the World Bank is quite well run—the issue is one of misgovernance, not malfeasance,” the report said.
In short, violation of ethical principles by the actions of the IBRD board of directors is an issue that affects investors who do not have a chance to be elected to the board.
“In an aid organization, however, the cost of misgovernance are borne not by the investors but by the citizens of poor countries in terms of fewer new health clinics, schools, or technical advisors,” the researchers explain.
The WK experts take exception when it comes to the IDA. Serving on the IDA board of directors does not bring more funds for a country. The probable reasons are the “difference in their missions and funding policies.” The IDA apportions funds based on a formula that has been in existence since 1977.
“This shows that a strong sense of humanitarian mission, as well as more explicit instructions for who can receive funds, may mitigate the governance problems that arise from limited representation,” Werker said during an April interview published by WK.
Donor countries, such as the United States, Japan, and France reward friends or those they need to support a political decision or a vote in favor of a special issue, instead of the countries with the greatest need, said Werker.
Werker suggests that currently no remedy to the inequities exists.
“We need to first assess the damage and study the patterns before crying out for any fundamental changes.”
Transparency and publication of fund allocation could be a possible solution. This would show non-board member countries the one-sided allocation of funds. As a result, a reckoning would ensue, which could eliminate existing practices in the future.
The World Bank was originally created in 1944 to facilitate reconstruction after World War II. The bank’s mission still includes the original directive, but was expanded to reduce worldwide poverty.
The IBRD’s mission is to assist middle-income, creditworthy, but poor countries. IDA assists poverty-stricken countries, whose citizens live below the poverty line or are considered too great a risk for lending institutions.
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