World Economy

After World Bank chief resigns, worries of a Trump-appointed leader abound

Key Points
  • Following the surprise resignation of World Bank President Jim Yong Kim, concerns are rampant that U.S. President Donald Trump will select a candidate who shares his contentious views.
  • The U.S. has always picked World Bank leaders, an arrangement that's long been rebuked by the rest of the world.
  • A leader appointed by Trump could scale back the bank's climate change program, experts said.
An employee walks outside the World Bank headquarters in Washington, United States.
Win McNamee | Getty Images

The abrupt departure of World Bank President Jim Yong Kim could revive long-standing concerns about the degree of influence the U.S. wields in selecting a new leader for the international financial institution.

The world's largest economy has always chosen World Bank leaders and if President Donald Trump appoints one who shares his views, experts say the organization's reputation and climate change program could be at stake.

More than three years before his term ends in 2022, Kim, who was appointed by former president Barack Obama, announced his resignation this week, saying he would be joining a private-sector infrastructure investment fund. The move was of his own accord and not because he was pushed out by the Trump administration, people familiar with the situation told Reuters.

But others speculate the Korean-American left due to fundamental differences with the Trump administration over environmental policies. "It's hard to imagine that Kim was not hearing messages from the Trump administration," Peter McCawley, former dean of the Asian Development Bank Institute, wrote in a note published by The Lowy Institute, an Australian think tank. World Bank presidents have always maintained close links with senior figures in the U.S. Treasury, he added.

If a new president, appointed by Donald Trump, were to try to introduce a strong conservative agenda into the work of the World Bank, the institution would soon lose credibility.
Peter McCawley
former dean of the Asian Development Bank Institute

The World Bank declined to comment on the matter.

'Time for a change'

The United States — the World Bank's biggest shareholder — and European nations have an agreement that allows them to split leadership of the bank and the International Monetary Fund. Critics have long admonished that arrangement.

"Since the creation of the International Monetary Fund and World Bank at the end of the second world war, an American has led the Bank and a European the IMF," Mark Sobel, U.S. chairman of The Official Monetary and Financial Institutions Forum, an independent think tank, wrote in a Monday note. "It is time for a change."

Miriam Brett, international development finance project manager at the Bretton Woods Project, a U.K.-based non-governmental organization that advocates drastic reform at the World Bank and IMF, echoed that view.

"The 'gentleman's agreement' of the IMF and World Bank leadership selection says that the Bank president should be an American," she said on Twitter. "Surely it's time to replace that archaic agreement with a democratic selection?"

Low income countries facing risks from decreasing trade growth and debt: World Bank
Low income countries facing risks from decreasing trade growth and debt: World Bank

Indonesian Finance Minister Sri Mulyani, former Nigerian Finance Minister Ngozi Okonjo-Iweala, Colombian professor Jose Antonio Ocampo and former Indian central bank governor Raghuram Rajan have all been touted as deserving candidates for the job.

If the World Bank gets a president who is neither American nor European, that would enhance the bank's global standing and "counter the drift toward regionalism," continued Sobel, who is a former veteran U.S. Treasury official and a former U.S. representative at the IMF.

Opaque Chinese lending is challenging multilateral finance and undermining debt sustainability in many countries and it's imperative that the World Bank is viewed as a credible alternative to Beijing in that regard, Sobel said.

Credibility at risk

Given the U.S. president's contentious views, a Trump-appointed World Bank chief could lead to all kinds of problems.

"If a new president, appointed by Donald Trump, were to try to introduce a strong conservative agenda into the work of the World Bank, the institution would soon lose credibility," McCawley said. The World Bank's role in providing countries with funds to develop their economies has already lost stature in recent years as more nations turn to private capital markets instead.

Any appointment that upholds Trump's views on climate change would be a disaster for the World Bank.
Julien Vincent
Market Forces

If the White House puts forth a controversial candidate, it could also spark clashes between Washington and the international community. "It would run the risk of rejection and serious discord," according to Sobel, who added that Washington is well aware that other countries are skeptical of U.S. attempts to maintain the World Bank presidency.

Impact on China, climate change

The World Bank's stance on climate change could also be altered. After the U.S. withdrawal from the Paris Agreement, Trump made clear that he did not view climate change as a major priority. He once referred to the issue as a "hoax" at a December 2015 campaign rally.

"Any appointment that upholds Trump's views on climate change would be a disaster for the World Bank," said Julien Vincent, executive director of Market Forces, an Australian environmental advocacy initiative that focuses on financial institutions.

"If President Trump sent a climate-wrecker into the World Bank, it would only serve to restrict investment opportunities for companies and investors looking to take our energy sector into the 21st century, and make the World Bank about as useful as a government agency that's been shut down," Vincent continued.

Infrastructure projects must be 'bankable': World Bank CFO
Infrastructure projects must be 'bankable': World Bank CFO

The World Bank's restrictions on certain energy investments send powerful signals to the finance sector and help shift the behavior of global institutions so any scaling back of its climate change programs could have a great impact, Vincent warned.

It's possible that a Trump-appointed candidate could also impact Beijing.

The U.S. Treasury Department has regularly criticized the World Bank for allowing China to borrow billions each year despite its position as the world's second largest economy and a financier to emerging economies. With Trump's influence, a new World Bank leader could potentially reduce lending to the Communist state.

Last April, the organization announced lending reforms that will increase borrowing costs for higher-middle-income countries such as China.