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Zedillo Commission Offers G-20 a Blueprint for Fixing the World Bank (But will Zoellick be Gorbachev or Brezhnev?)
October 29, 2009
Last week, the World Bank released the long-awaited report of a high-level commission headed by former Mexican president Ernesto Zedillo. The report, which had been requested by World Bank president Robert Zoellick, offers a comprehensive blueprint for modernizing the World Bank to deal with the challenges of the 21st Century.
Zoellick, a U.S. appointee, welcomed the report and said it would be “especially relevant as we undertake important institutional changes.” But he expressed doubts about recommendations for changes in the size and structure of the board, while side-stepping a recommendation that the next bank president be chosen without regard to nationality.
CGD president Nancy Birdsall, an expert on global governance who has written extensively on World Bank reform, called the report “an important milestone in the ongoing debate about how to make the World Bank more effective and legitimate.” She added: “If the sherpas for the G-20 and others concerned about fixing the World Bank read only one thing about the bank this year, this should be it.”
I’m guessing that the report’s recommendations reflect Zedillo’s rich first-hand experience with tough institutional transitions. The last of an uninterrupted 70-year line of Mexican presidents from the so-called Institutional Revolutionary Party or PRI, he served as a sort of Mexican Gorbachev, opening the way to a new order when the old way of doing things had ceased to work.
So, is Zoellick Gorbachev or Brezhnev?
The eleven-member commission—which includes very senior officials and former officials from such increasingly influential G-20 members as China, India, and Brazil—isn’t counting on visionary leadership from the current bank president, or expecting that sufficient reform could emerge from discussions within the current board. They are counting instead on the G-20. The report notes:
Only national leaders can break the gridlock on reform of the World Bank Group: meaningful reforms of multilateral agencies, at least in their broad outline, are unlikely to be decided anywhere but at the level of heads of state and government.
The report’s five recommendations are designed to make the bank more effective in organizing collective action to support poverty reduction and deliver global public goods. They go well beyond the marginal boost in developing country voting power currently on the table. The report insists that they are designed as a package, in which each element is essential to make the others work.
At the core are changes in the structure and role of the board, and the relationship between the board and the president. These are needed, the report argues, to eliminate confusion in the oversight of the bank’s work and conflicts of interest that arise because the president and the board share responsibility for the bank’s financial operations.
Currently a 25-member “Executive Board” meets twice a week and oversees day-to-day activities, with little scope for setting strategy. Pretty much the same people meet in a different guise, using different rules, to oversee other arms of the World Bank Group, such as the International Finance Corp. (IFC) and the Multilateral Investment Guarantee Agency (MIGA).
The report urges shifting to a 20-member “World Bank Board” (e.g. non-executive) in which all members would represent multiple-country constituencies (now eight directors represent one country each, while the others represent roughly 16 countries each). The new board would comprise senior officials (ministerial rank) from the member countries, each elected by a multi-country constituency, and would set the bank’s strategic direction.
A larger advisory group, with broad representation, would assist the board during a transitional period.
The report makes a persuasive case for such reforms, arguing that the smaller, more legitimate board could hammer out international consensus on fair and effective collective responses to global problems that countries cannot solve on their own (think climate change, but also global epidemics, fisheries depletion, money laundering and illicit weapons, diamond and narcotics trades).
As the report notes, a smaller board can only be achieved only by reducing the large number of seats currently held by the Europeans:
European countries appear to be considerably overrepresented in terms of the number of chairs they occupy in the Group’s Executive Board… Depending on rotation schemes, European countries occupy eight or nine chairs at any given time—32 or 36 percent of the chairs in the 25-chair Board.
The report points out that this is a historical legacy that has little relevance in the 21st century, notwithstanding the fact that several European countries make generous contributions to the bank’s soft loan window, the International Development Association, or IDA.
As a former bank staff member who occasionally observed the board in session, I was disappointed that Zoellick appeared to express reservations about these thoughtful suggestions. In his letter to Zedillo (weirdly stuck in front of the Commission’s report in a single PDF on the bank’s website, as if to ensure that readers see the report only after reading Zoellick’s response) he writes:
You also suggest consolidation of Board Chairs. Interactions with our shareholders make me believe that while we must change voting power, the current composition of the Board, with the addition of a third African Chair, is well suited for supporting the development mandate of the World Bank Group. It provides a balanced representation of constituencies which will be further reinforced with advancement of Voice reform. We want to remain an inclusive institution, where there is incentive for solidarity with the poorest countries and for contributions to a strong IDA.
The report also includes a detailed proposal for a new system for selecting the bank president in a manner that is rules-based, competitive, inclusive of the membership, and, crucially, without regard to nationality. (A 2007 CGD survey found broad support for such an approach.)
Zoellick replied:
there is considerable agreement on a selection process… that is merit-based and transparent, with nominations open to all Board members and transparent Board consideration of all candidates.
Seems positive, right? Yet he strikingly omitted the crucial words “without regard to nationality.” Unless the board itself is restructured, it’s easy to imagine that the United States would continue to dominate the process (with European support in exchange for U.S. backing for a European at the helm at the IMF.)
In my view, such a scenario would be damaging to the bank’s legitimacy and effectiveness, and ultimately also to U.S. national interests, which benefit from an effective World Bank and transparent, rules-based global governance.
It is perhaps too much to wish that Zoellick, who invited Zedillo to organize the Commission, would embrace the recommendations more fully. He came to be president through the current, dysfunctional system and he remains beholden, albeit in a haphazard fashion, to the current dysfunctional board.
Still, Zoellick has plenty of scope to be a little more Gorbachev (or even better, a little more Zedillo) and a little less Brezhnev. He is now half-way through what will almost certainly be a single five-year term. In the time that remains, he could use the bully pulpit of his presidency to encourage a full and open debate. The governance section of The Hardest Job in the World: Five Crucial Tasks for the New President of the World Bank includes some practical, still-relevant suggestions on additional steps.
Whether he does this or not, the Commission’s report will likely frame the private discussions of World Bank reform among the heads of government that comprise the G-20, and the able sherpas who support them. Strikingly, the Pittsburgh G-20 Communiqué, issued before the report, includes language similar to several of the report’s recommendations.
My colleagues and I here at CGD are pleased that we can contribute to this process: on November 6 we will host a presentation of the report’s key recommendations by Zedillo himself, followed by a lively and informed discussion. If you have read this far and are in the Washington area, you deserve to be there: request an invitation now by contacting Heather Haines.
11 Responses to “Zedillo Commission Offers G-20 a Blueprint for Fixing the World Bank (But will Zoellick be Gorbachev or Brezhnev?)”
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October 30th, 2009 at 3:49 pm
Zedillo lays a dud.
Nothing was done by Zedillo to overcome the problem of absence of accountability and transparency that is directly linked to the privileges and immunities of the Bank.
However, the recommendation to abolish the useless and costly resident Executive Board is a good one.
With Zoellick behaving like Brezhnev, it will probably be yet another report that accomplishes nothing and merely gathers dust. Zoellick pretended that he had not received the Report at the Annual Meeting earlier in October.
Having Zoellick’s letter presented as the first page in a single .pdf file, supposedly sent the same day as Zedillo’s letter & the Report, is also a disgrace. The level of manipulation in such matters leaves everyone with a bad taste.
George
October 30th, 2009 at 5:51 pm
Zedillo has given just one interview about the report of which I am aware. You can find it here: http://www.yaledailynews.com/n.....nk-report/
November 2nd, 2009 at 12:17 pm
The Hardest Job in the World would seem to be difficult to fill. Assuming that blog readers know the publisher of this book. Hope a summary of Zedillo’s CGD visit will be on this blog and widely available. Very informative analysis. Thanks.
November 3rd, 2009 at 1:09 am
It is essential for the Center for Global Development and other stakeholders in the development system to maintain pressure to ensure that a new selection process is put in place well before 2012 when Zoellick’s term expires.
Zoellick has never studied, lived, or worked in developing countries and it is a travesty for him to continue to game the system.
November 4th, 2009 at 12:50 pm
The World Bank developed a policy paper on governance for its borrowers back in 1990-1991 making the case for improved accountability, predictability and transparency. But the WB never applied these rules to itself or its own governing structures. The time has come–indeed is overdue, for World Bank reform. In addition to the over representation of european powers and the US hold on appointing the President, much needs to be done to reform and strengthen the capacity of the World Bank to meet current and future needs. The Zedillo Report points to some of the ways to go forward, but much more needs to be done if we are to have a more effective and accountable World Bank.
November 5th, 2009 at 2:31 pm
Lawrence, I thought I would follow up on your insightful comments on the Zedillo Commission’s report on reforming the World Bank’s governance with a few additional observations. First, it is a report that is forward looking and offers sound recommendations on how to retool the Bank into a more transparent and accountable institution. As you note, the commission has gone beyond previous calls for the Bank to realign the board’s composition, reallocate voting power at the IBRD and IFC in favor of developing countries and implement a more open and merit-based process of selecting future presidents. Such reforms, long supported by a number of development think tanks and practitioners, CGD included, nevertheless remain worthwhile.
Commission initiatives would further increase openness and rebalance the representational inequities the Bank currently has in place. Reforms suggested by the commission have largely focused on the role of the board and its relationship with the president and senior management. In my just released book, The World Bank Unveiled: Inside the Revolutionary Struggle for Transparency, I examine a different relationship: The one between senior management and mid-level management; and the how the institution’s long-standing internal culture impacts both groups to create structural inefficiencies that undermine the Bank’s effectiveness in reducing poverty.
Here, let me offer just one example of this relationship and how it is influenced by the Bank’s unique internal culture: Senior management sculpts visionary reforms to internalize, address and reduce geo-political pressures brought upon it by the Bank’s member countries, external watchdogs, the media and the ever-evolving business and financial environment. This has led senior officials to engage in regular reorganizations, but to implement reforms it must rely on its mid-level management. As these external pressures have grown, the information revolution and a heightened interconnectivity of the global economy have reduced the amount of time senior officials have to react. As a result, their reliance on mid-level management to implement these reforms has increased. Concurrently, mid-level management is in reality a series of fiefdoms. The internal culture of the institution over more than six decades has instructed managers that maintaining the status quo is the principle strategy for advancement and accruing power. Therefore, the fiefs, in turn, are wedded to the status quo. This results in competing objectives between the two groups.
In my examination of the organization from the inside out, I have sought to assess systemic and structural inefficiencies as a way of forcing the bureaucracy to re-examine its cultural instincts. Consequently, the emphasis on what reforms that my research suggests would be helpful is different (but not necessarily better) than what is being advocated by the Zedillo Commission and other experts.
Nevertheless, there is some overlap. For example, with regards to the Independent Evaluation Group (IEG) the commission suggests the majority of its staff be recruited from outside the Bank, there should be an end to the revolving door dynamic between its staff and Bank staff and that the IEG’s director general no longer be part of the Bank’s senior management. These are steps in the right direction, but do they go far enough? The Bank’s management has shown an historical reluctance over relinquishing final control of internal accountability mechanisms. One may include IEG in this, but also other accountability mechanisms such as the Conflict Resolution System and Inspection Panel.
Perhaps greater emphasis should be made to create an evaluation body that is completely independent of the Bank and its board. This would alleviate pressure senior management can apply to IEG’s staff conducting evaluations. Some have suggested that it is not the quality or objectivity of IEG assessments that are of concern, but rather management’s ability to ignore them as it sees fit. Again, I would argue a fully independent unit would in fact increase the pressure on the Bank’s management to implement recommendations derived from its assessments. This viewpoint has been espoused by a number of development practitioners including by CGD’s senior fellow Vijaya Ramachandran at a Congressional hearing in September. Concurrently, some have argued for changes in the evaluation process itself. More emphasis, they suggest, should be placed on project’s sustainability as opposed to project’s approval phase. This would dilute the “approval culture” of the institution and increase managerial accountability.
Ramachandran’s testimony was in response to another area of great interest to civil society stakeholders – the Bank’s information disclosure policies. The Bank has not been traditionally proactive in this area. Over two decades, it has made steps forward, but only because of pressures brought upon it by external sources. In the late 1990s, the Bank began to recast itself as a “knowledge bank,” but many would question whether the effort has been a success. That’s because the cultural instincts of the institution favor information hoarding rather than knowledge sharing, disseminating information only after its been “perfected” and providing fostered learning environments that create client dependency rather than promote true knowledge sharing. The Zedillo Commission alludes to this in its report. It is also the central theme I have been exploring over the past decade.
Why is transparency inside the Bank central to the institution’s effectiveness? I refer to James Wolfensohn’s comments on the eve of his departure as Bank president in 2005 when he said transparency reduces corruption, reduced corruption leads to better governance and better governance increases development. Transparency, he believed, was the key. In 2009, the Zedillo Commission noted governance matters because it is necessary for the Bank to be “more strategic about its interventions, more rigorous in evaluating and learning from its performance, and more open to collaboration with other institutions.” These two viewpoints go to the core of what The World Bank Unveiled examines in detail.
November 6th, 2009 at 11:02 am
Please see this good review by Bea Edwards in the Daily Koss:
http://www.dailykos.com/story/.....governance
November 6th, 2009 at 6:45 pm
Surely Mr. Zedillo has thought a lot about his recommendations on all issues, but it is worth wondering which IEG evaluators he has interviewed. The IEG findings tend not to be as positive as operations would like. Very unfortunately, the reaction is to “shoot the messenger”, i.e. the staff members who were honest and independent enough to write the evaluations. For this reason, IEG staf may face a strong negative bias when they try to get a job elsewhere in the Bank. Concrete and repetitive examples are known of staff who were not hired by operations or not promoted by sector boards because of their presumed negative bias.
The result is that higher-level IEG staff may “cool out” for over 10 years before they can go to another Bank department – if they do before retiring. Contrary to this recommendation, IEG evaluators need protection against retaliation and safe entry means back into the rest of the Bank.
November 7th, 2009 at 2:45 pm
The previous post by Helen Abadzi is extraordinary. If even the internal evaluators at IEG are afraid of retaliation, it is highly irresponsible for donors to continue funneling funds to the Bank without tangible reform.
She also raises an extremely important point about the Zedillo Commission and all Bank-related “independent” commissions and committees. Who they interview is tightly controlled by management — again pointing to the flawed processes. Anyone with a worthwhile opinion is always shunned by the Bank’s management.
November 7th, 2009 at 3:57 pm
The Op-Ed by Zoellick in the NY Times on German reunification indicates why Zoellick ought to be US Ambassador to Europe, and not the President of the World Bank. A long-time aide to James Baker III, Zoellick later worked as a virtual chief-of-staff for the Florida Recount operations led by Baker for the Republicans that secured for themselves the Presidency.
November 7th, 2009 at 9:48 pm
Review of Zedillo Commission Report by Bea Edwards of Daily Kos
Weak prescription for improved World Bank governance
by Bea Edwards
Thu Nov 05, 2009 at 10:26:19 AM PST
On October 20th, the High Level Commission convened to assess governance at the World Bank transmitted its report, “Repowering the World Bank for the 21st Century,” to World Bank president Robert Zoellick. The report concluded (more or less verbatim) that:
• Current mechanisms for strategy formulation are not adequate for setting priorities and guiding operations;
• Mission creep is endemic, weakening accountability and increasing the risk that resources will be misallocated;
• The decision-making process is perceived as too exclusive;
• Insufficient institutional accountability for results weakens the World Bank’s effectiveness and legitimacy;
• The Bank’s resource base is insufficient.
The ‘accountability’ concerns of the commission, headed by former Mexican president Ernesto Zedillo, are profound. Among other things, the commissioner’s wrote, the Executive Board lacks the independence necessary for effective oversight. The appointment of the president is “opaque and excludes most of the membership.” The conduct of the Bank president is unsupervised, executive directors are not necessarily competent or qualified, and accountability functions are a patchwork of ad hoc assignments.
Unfortunately, the commission produced only superficial recommendations to address all this. Much of the suggested improvement consists – literally – of rearranging the chairs (on the board). Board chairs would be switched around and reduced in number. The president of the Bank would no longer sit in the chairman’s seat. He would also be subject to a performance review (by the board). A council of advisors would be established to counsel the president, but its composition “would mirror that of the Board.” The methods to be used to choose council members are unspecified.
To strengthen accountability, additional reviews will be conducted, presumably by similar High-Level Commissions confronting similarly defective arrangements.
This is not serious. In 2007, cronyism was exposed in the office of the World Bank president: Paul Wolfowitz had installed a network of overpaid and underqualified advisors with carte blanche to intervene anywhere they pleased. As a result, they wreaked havoc.
During his tenure, Wolfowitz established a position for his romantic partner at a ‘foundation’ putatively run by the US Department of State, paying the woman approximately $70,000 more per year than the salary earned by the Secretary of State. And, just as the dust settled from these adventures, his General Counsel took it upon herself to obliterate the autonomy of the Bank’s Ethics Office.
At the same time, emails surfaced suggesting that the Bank would defang its anti-corruption program after push-back from the government of China. Meanwhile, longstanding, widespread corruption came to light in Cambodia, the Philippines, India, Kenya and Viet Nam.
A year later, the General Services Division at the Bank was forced to disclose that its three principal IT vendors had been debarred for fraud and corruption. One of them had bribed the Bank’s Chief Information Officer, who was also (nominally) debarred, and then compensated in the amount of $25,000 by the Bank for damage done to his reputation by the whole affair.
This year, the Bank’s Vice President for Institutional Integrity was exposed in the press for politicizing a high-level investigation in South Africa, an ethical lapse that directly affected the outcome of the recent presidential election there.
At the same time, the Independent Evaluation Group concluded that the inadequacy of internal controls regulating the Bank’s concessional lending rose to the level of a material weakness.
These problems will not be addressed by switching the seats around the table, nor will they be addressed by adopting the second of the commission’s recommendations: “Strengthening the WBG’s Reource Base,” i.e. dumping more public money into the same pockets. Greater taxpayer funding to finance the dubious actions of many of these people (and their friends, relatives, colleagues and cronies) sitting in brand new chairs is not the answer.
http://www.dailykos.com/story/.....governance