Though an American will win, an African should be the next President of the World Bank

Alexander Pannett 7.15am

The World Bank is about to elect a new President.

There are three very well qualified candidates, who all promise to change an institution that has suffered severe criticism in recent years about its approach to global development.

The World Bank has a real opportunity to select a President from a developing nation and break out of its image as being run at the behest of the World’s richest nations (i.e. the West~).

In this regard, there is a clear favourite in Nigeria’s finance minister, Ngozi Okonjo-Iweala (pictured above). As well as being an economics graduate from an Ivy League university and a former managing director of the World Bank itself, she has a proven track record as a finance minister of a major developing nation.  She also has the backing of the African Union. Who better to reform the World Bank and revolutionise its approach to the developing world?

Unfortunately, every president since the bank’s creation in 1946 has been an American. This is the consequence of a gentleman’s agreement with European nations. They support an American candidate for the World Bank and, in return, the Americans support a European for the head of the International Monetary Fund (IMF), its sister organisation.

Voting at the IMF and the World Bank has also been weighted in favour of richer, Western nations. Thus the global financial institutions of the Bretton Woods system have been dominated by westerners since their inception.

Such a bias towards the developed world has attracted criticism that the conditions of economic funding to developing nations are often unsuited to those nation’s particular needs, concentrating on short-term GDP growth rather than long term stability. The results have often led to painful restructuring of traditional societies, local industries and employment practices as economies are forced to open up to global free markets in return for capital from the World Bank.

The experiences of Russia, Eastern Europe, Asia and Latin America in the 1990s, are all demonstrative of this economic “shock therapy”, which often achieves more harm than good by forcing countries to accept structural adjustment packages which are tied to strict conditions resulting in a developing country deepening its dependence on foreign financial flows.

The consequences have been spiralling debt, massive unemployment, rising economic inequality and widespread social depredation as social services crumbled.

Developing countries that accept credit from the World Bank to ease desperate liquidity concerns have ceded economic sovereignty to World Bank supervision, where World Bank consultants can intervene and recommend private investor infrastructure ‘partnerships’ in areas ranging from health and education to utilities.

This transfers economic authority to the IMF, World Bank and foreign investor interests, leaving the developing country with little option but to accept strict conditions in order to ensure continued access to credit in order to meet its debts. Structural adjustment packages have deepened and prolonged financial crisis and underdevelopment in many cases and undermined the sovereignty of developing countries.

This is why a World Bank president who understands the harm that neo-liberal economic policies can impose on un-prepared markets is vital if developing nations are to secure lines of credit that promote sustainable development rather than trap nations in debt.

Regrettably, the chances of a non-American becoming president are nil. With the Europeans having secured the American vote for the election of their candidate, Christine Lagarde, to lead the IMF, they are certain to return the favour. Moreover, it is election year in the United States and President Obama will not want to be seen as weak by becoming the first US President to fail to have their World Bank candidate elected.

This is not to say that President Obama’s nomination, Jim Yong Kim, is not an excellent candidate, with an impressive reputation in international development.  He is also a doctor and former World Health Organisation official. The fact that President Obama has selected an individual with deep experience in development rather than a former politician or banker, as all former American nominations have been, suggests he is starting to address concerns that the World Bank be changed to meet the needs of developing countries rather than be a mere Jesuitical proponent of laissez-faire economics.

Yet until the World Bank and IMF appoint candidates according to merit rather than arcane arrangements, we will carry on wasting chances to help developing nations in a sustainable way and alleviate the grave poverty and environmental concerns that will continue to afflict both humanity and the biosphere we live in for the foreseeable future.

Follow Alexander on Twitter @alpannett

The Eagle and the Dragon

Alexander Pannett 7.07am

The recent prediction by the IMF that, using purchasing power parity, China will overtake the USA as the world’s largest economy by 2016 has left many fearful of the coming century.  In Hay-on-Wye, where I spent last weekend hiding from rain clouds, there was much talk of the impact China will have on the world as it exerts its new economic strength.  China will certainly change the dynamics of world power but behind its fearsome economic achievements lie some dangerous weaknesses that may prevent the Middle Kingdom from ever truly usurping America as the world’s foremost power.

China’s economic growth in recent years has been staggering.  By some measures, China is already the world’s largest consumer of energy and accounts for half of the world’s growth in oil demand.  The World Energy Outlook report has predicted that China’s energy demand would jump 75% between 2008 and 2035, contributing 36% to the projected growth in global energy use.

China’s neighbours have had much to worry about recently from the rising dragon.  China has built its first aircraft carrier and has already modernised its blue water navy with submarines and destroyers.  It is becoming much more assertive and has made bold territorial claims over the South China Sea, stretching as far south as the Spratly Islands near Brunei.  Chinese coastguard vessels routinely detain Vietnamese fishing boats in the disputed waters.  In 2010, a Chinese fishing vessel rammed a Japanese patrol boat off the disputed Senkaku Islands.  Japan’s refusal to release the Chinese captain led to China imposing a de facto ban on rare earth materials to Japan.

However, China’s impressive annual growth rates of 8% to 10% hide some very high environmental costs that are already starting to have a huge impact.  Years of unrestrained industrial polluting has wrecked the water supply, with rivers full of toxic metals and chemicals.  Agricultural land is suffering without access to safe water.  Increased water use has led to shortages and and desertification in north China.  This is particularly serious in a country that is already 30% desert.  More than half of China’s 660 cities suffer from water shortages, affecting 160 million people.  The tremendous cost of this worsening environmental damage has likely been unaccounted for in China’s headlong growth rate raising speculation that it is much smaller than currently forecasted.

Chinese economic growth is coming to the end of a cycle.  Global demand of cheap products cannot keep pace with the growth of China’s industrial output.  Whilst China’s middle class has exploded in size, domestic demand will not be enough on its own to maintain China’s current growth rates.  An even bigger problem is that there are simply not enough resources in the world to support a Chinese population that would have the same consumption levels of the American population.  The Chinese economy will need massive restructuring away from low end manufacturing if it is to deliver the wealth that will rival the United States.

China also has a huge, looming demographic crisis.  The one-child policy may have been successful in slowing Chinese population growth but it has meant that China will soon have a very large elderly population.  People above the age of 60 now represent 13.3% of the total population, up from 10.3% in 2000. In the same period, those under the age of 14 declined from 23% to 17%. This will create significant welfare costs for the government and will require younger workers to pay disproportionately for the costs.  This will further dampen economic growth.

The political structure of China is much weaker than the one party imagery would let outsiders believe.  Transfer of power between generations is conducted via a lengthy, Byzantine process of committees and personal loyalties.  It can often take five years for a new president to finally weed out their predecessor’s supporters from positions of power.  This does not leave much influence or time for a president to control the teeming multitude of 1.3 billion Chinese, let alone consider an effective and consistent foreign policy.  With growing calls for political reform, independence movements in Tibet and Xinjiang and anger over environmental and economic issues, there is much internal instability that hampers China’s ability to exert itself on the world stage.  It says much about the true fears of the Chinese leadership that for the first time in March 2011, China’s internal security spending trumped that of its defence spending.

Whilst China has certainly become an economic power and will be a future superpower, there are many structural flaws to overcome before it can be secure enough to exert its weight in global politics.  Considering its weaknesses, it will be hard pressed to usurp the USA as the foremost world power, even if its GDP becomes the largest on paper.  Besides, this is assuming that America will continue to grow at its recent negligible economic rates.  As the most innovative, capitalist nation on earth, with still unparalleled intellectual and economic resources, it cannot be long before the eagle answers the dragon’s challenge.

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Blocking Gordon Brown’s chance of the IMF job is unnecessary and regrettable

Nik Darlington 6.59am

It is being reported widely that the Prime Minister, David Cameron, and his Chancellor, George Osborne, are planning to block Gordon Brown’s possible appointment as president of the IMF.

Mr Cameron intimated as much this week on the Today programme:

"Above all what matters is that the person running the IMF [is] someone who understands the dangers of excessive debt, excessive deficit, and it really must be someone who gets that, rather than someone who says that they don’t see a problem."

According to the Daily Mail, a source close to the Chancellor said Brown’s appointment would be “an insult to the British public” and “it is not going to happen on our watch”. No such mincing of words there.

However suitable or unsuitable for the job one thinks that Gordon Brown is, it looks indecent to blackball him before a vacancy has even arisen.

As Andrew Grice points out at the Independent, any overt promotion of Gordon Brown’s cause at the IMF would run counter to the Government’s blame narrative, so obviously Cameron and Osborne are’t keen to provide any sort of reference. Even so, the reaction from Numbers 10 & 11 is surprising. After all, says Grice, ”when John Major blocked Neil Kinnock from becoming a European Commissioner, he didn’t rub his nose in it.” He also did the blocking after Kinnock had done the applying.

As it happens, I do not believe that Gordon Brown should get the job, though there many reasons to recommend him for it. One well-placed observer tells me that Brown “had a very good financial crisis”. You can argue plausibly that he had a big hand in exacerbating that crisis in the UK but you can’t ignore his decisive international leadership at the time, impressively and soberly detailed in his recent memoirs. It seems difficult to believe in Britain, but Gordon Brown is a highly respected figure around the world, where people don’t know about the gold sales, the pension thefts, and think that Mrs Duffy is a Grammy winning Welsh singer. His opinion of the present Government’s deficit reduction strategy contradicts the IMF’s recent approval of Osborne’s spending review; however, do not forget that the IMF also backed Brown’s fiscal stimulus exactly one year previously. His longstanding and proven passion for international development and eradicating Third World debt also counts in his favour.

Nevertheless, he might apparently be the “clear favourite” but there are plenty of factors weighed against a Brown candidacy. Sean O’Grady lists several on the Independent's Econoblog, some of which can be safely disregarded (Brown is ‘basically mad’ and lacking ‘emotional intelligence’; ‘he never really hit it off with Obama’; and he’d ‘hate being outsmarted by the ultra brainy IMF staff’), but others are more weighty, such as it being time that the IMF appointed someone from the emerging nations of the world (something Brown himself has called for) instead of a traditional western European. The IMF would do well to choose a proven and respected finance expert such as former South African finance minister Trevor Manuel. This is the strongest argument against appointing Gordon Brown.

Furthermore, Brown has repeatedly courted and dismissed the job in the past - affronts that the IMF might take into account. Strong rumours began to circulate in 2004 when Brown was still Chancellor and continued right up until his electoral defeat last year and beyond to the present day. Making a dash for it now could come across as mendacious and desperate.

All things considered, however strong a candidate he is, Gordon Brown’s chances of winning the post are slim, which makes the reaction of the Prime Minister and Chancellor even stranger. The Independent describes their stance as “graceless low politics” and observes, “neither Tony Blair nor Margaret Thatcher ever belittled John Major or Jim Callaghan in such a fashion.” Blair complicated the natural order a bit by going on to belittle his successor rather than predecessor, writing in A Journey that Brown had “zero emotional intelligence” and that his “disaster” of a premiership was “never going to work”. To his credit, Brown discouraged any recriminations and left his own book clean.

What is more in 2009, Brown threw his full support behind Blair’s bid to become the first EU President, saying that he would be “an excellent candidate and an excellent president” - surely through gritted teeth. Brown finally had the premiership that he maniacally craved for so long but relations were embittered. What is more, Europe was a fierce dividing line between Blair, the passionate europhile, and Brown, the Chancellor that kept Britain out of the single currency. In spite of their torrid recent history, Gordon Brown was still able to put domestic squabbles to one side and see the merit of a Brit filling a top international job.

By all means, incumbents of Number 10 can criticise past Prime Ministers for their actions in office. The fact that Gordon Brown indulged in an expansive and reckless, debt-financed spending spree whilst Chancellor and Prime Minister is probably, on balance, worth pointing out as a drawback in appointing him to head the IMF. Yet I would argue that for this posting, it is chiefly on his international record that he should be judged.

Of course, at this point in time, with no candidacy announced and Dominique Strauss-Kahn still in situ, nothing required saying, therefore the civil thing to do would have been to say nothing at all.

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