The Trump administration’s nominee to run the World Bank intends to focus the bank’s lending on the neediest countries if he gets the job, a priority that could cause friction with more affluent borrowers, including China.
President Trump announced Wednesday he is nominating David Malpass, the Treasury Department’s undersecretary for international affairs, to be the next World Bank president. By tradition, the U.S. has long chosen the bank’s leaders, though other countries may also nominate candidates, and some expect the competition to be sharper this time.
Malpass is a former Wall Street economist who has spoken critically of the World Bank in the past, saying in 2017 that there is “a lot of room for improvement” in the bank’s lending program.
On Wednesday, Malpass said some of his past criticisms are being addressed in a reform plan that the bank recently adopted. He said one aim of those reforms is to wind down lending to higher-income countries such as China, a plan Malpass said he would prioritize.
“China is the world’s second-biggest economy,” Malpass said in a meeting with reporters. “It doesn’t make too much sense for the higher-income countries to be drawing so many of the resources of the bank when there are poorer countries that could make use of those resources.”
Malpass added that this goal “wasn’t China’s desired set of reforms, but in the end, my perception is that China wants to participate in multilateral organizations.”
Announcing the nomination, President Trump said Malpass would be a “strong advocate for accountability” at the World Bank and would support the administration’s aim of ensuring “that U.S. taxpayer dollars are spent effectively and wisely.”
The World Bank, funded by countries around the world to lend to developing nations, doled out nearly $67 billion in financing, investments and guarantees in its most recent fiscal year, according to its annual report. The U.S. gives the bank more than $1 billion annually, Trump said Wednesday.
China boasts $3.1 trillion in foreign exchange reserves. It also routinely taps global credit markets, paying just 3.1 percent to borrow money from bondholders for 10 years, not much more than the 2.7 percent the U.S. pays.
The administration last year supported a $13 billion capital increase for the World Bank, conditioned upon the bank’s agreement to gradually wind down lending by middle-income countries like China.
“The World Bank’s biggest borrower is China,” Malpass said in a November 2017 appearance at the Council on Foreign Relations in New York. “Well, China has plenty of resources. And it doesn’t make sense to have money borrowed in the U.S., using the U.S. government guarantee, going into lending in China.”
Under the terms of the capital increase, countries are supposed to start weaning themselves from bank borrowing once they pass a per-person income threshold of $6,795.
Continued lending is authorized in such countries for projects that provide global benefits — such as by mitigating climate change — or that boost impoverished regions.
Though China — which has become a major global lender even as it continues borrowing from the bank — tops the income threshold on a national level, several of its interior provinces remain poor.
The bank is working with Chinese authorities to fund pollution control, education and health programs. In the rural Anhui province, the bank is providing $200 million to improve roads for a population of 12 million people.
Most of the bank’s lending to China meets the new requirements, “although significant areas of bank engagement do not appear to fall within” their scope, concluded a recent analysis by the Center for Global Development, a Washington think tank.
Brazil, Chile, Mexico and Turkey were among the middle-income countries that joined China last year in borrowing from the bank.
Yukon Huang, a former World Bank country director in Beijing, said China values the bank more for its expertise than its cash. Countries can access the bank’s advice on institution-building and technical knowledge only by taking out loans.
“It’s not the money,” he said.
The World Bank’s lending to China does not occur at the expense of other countries, according to Huang, a senior fellow at the Carnegie Endowment for International Peace. China no longer is eligible for the bank’s lending program for the poorest countries, the International Development Association.
In 2018, China borrowed about $2 billion through a separate World Bank channel, the International Bank for Reconstruction and Development (IBRD). The bank funds its IBRD lending by borrowing money on global markets, which is easier when its loan portfolio includes good credit risks like China, Huang said.
“The bank needs China more than China needs the bank,” he said.
The next president will replace Jim Yong Kim, a Korean American physician who resigned unexpectedly last month to accept a private-sector job managing infrastructure investments in developing countries.
The World Bank’s board aims to prune nominees to a shortlist in the coming weeks, with a winner expected to be chosen by April. No other countries have publicly disclosed nominees.
Malpass worked on Wall Street as chief economist to Bear Stearns, the investment bank that collapsed amid the financial crisis in March 2008. Seven months earlier, even as some of the bank’s own hedge funds were failing, he wrote a Wall Street Journal opinion article that played down the danger of an economic downturn.
“Housing and debt markets are not that big a part of the U.S. economy, or of job creation. It’s more likely the economy is sturdy and will grow solidly in coming months, and perhaps years,” Malpass concluded.
After Bear Stearns failed, Malpass unsuccessfully sought the 2010 Republican nomination to run for the U.S. Senate from New York. In 2016, he joined the Trump campaign as an economic adviser.
