IFC: Woicke sweeps in a new era
World Bank president James Wolfensohn has been battling to bring his organization up to date. Most recently and significantly, on January 1 Peter Woicke, an investment banker from JP Morgan, took the helm at the International Finance Corporation, the World Bank affiliate responsible for direct lending to private companies in developing countries.
Woicke, in an unprecedented move, was almost immediately appointed as a managing director of the World Bank Group with responsibility for guiding its private-sector work. Nemat Shafik, the World Bank's new vice-president for infrastructure and private-sector development, will report to him.
Sources close to the Bank say that Wolfensohn was responding to complaints from outside. Critics said the World Bank Group - five legally separate entities - wasn't acting like a unified organization.
Ibrahim Shihata, the Bank's former general counsel, told Euromoney that Wolfensohn had never liked the idea of a separation between the institutions and wanted them to act as a group with the same ultimate purpose. Wolfensohn serves as president of the whole group and the separate boards have practically the same membership - representatives of member governments.
The World Bank Group provides about $5 billion each year in private-sector financing. Most of this - as much as $3.5 billion in equity, loans and other funds - comes from the IFC. Miga (the World Bank's Multilateral Investment Guarantee Agency) writes about $1 billion in political-risk insurance each year. The Bank limits itself to providing partial risk or credit guarantees. Those guarantees go mostly to large private infrastructure projects.
All of these commitments are aimed at helping private-sector players undertake first-of-a-kind or breakthrough projects in developing countries. Total project investments mobilized by the group run to about $30 billion a year, both from its own resources and from outside investors. They make up a significant part of foreign direct investment in about 80 developing countries.
Woicke attributes his dual appointment to well-established trends. He notes that politicians in most countries have come to recognize that the private sector is the principal engine for development. "It was natural," he says, "to look for better synergies between what the World Bank is doing and what the IFC has been doing all along."
Policy wonks and dealmakers
The World Bank is perhaps the largest supplier of policy advice and related services to developing countries. More than 800 of its staff work at its Washington HQ and in about 50 field offices helping governments improve the overall business environment, privatize and promote well-functioning, competitive markets. Over 200 additional World Bank specialists help countries that are seeking to reform their banking systems and develop capital markets.
But the Bank's policy wonks are a breed apart from the dealmakers at the IFC and Miga. According to Jean-François Rischard, the Bank's vice-president for Europe: "There are great benefits to this specialization and cultural differentiation. So, it would not be a good idea to merge the Bank, IFC and Miga."
The IFC has succeeded brilliantly in promoting the flow of funds into developing-country stock markets. One of its employees in the 1980s, Antoine van Agtmael, even coined the term emerging markets. The disadvantage of specialization and differentiation is that potential synergies can be missed. Putting the head of the IFC in charge of private-sector activities at the Bank was less threatening than giving somebody from the Bank responsibility for the IFC. The Bank has about 10,000 employees, the IFC about 1,500.
Daoud Khairallah, the Bank's deputy general counsel, puts it this way: "I don't think that this structure - which emerged in a very specific historical context - has been a disservice to the institution in any significant way or prevented any of the five organizations from achieving its objectives. I'm not aware of great successes because the EBRD is, for example, more or less integrated."
The regional development banks - the European Bank for Reconstruction & Development, the Asian Development Bank, the African Development Bank and the Inter-American Development Bank - have a similar range of activities. But unlike the World Bank Group they are single legal entities.
Lex Rieffel of the Institute of International Finance in Washington says the situation is hard to understand without a knowledge of the culture of the World Bank bureaucracy. IFC loan officers often regard World Bank projects as inefficient and ineffective. And World Bankers tend to view IFC activities as marginal. "Most World Bank economists today see the institution, predominantly and overwhelmingly, as a source of financing to the public sector," he says.
Everett Santos, a former director of infrastructure at the IFC, thinks that the World Bank's priorities today don't reflect the private sector's expanded role in development. But he also points out that "it's hard for the Bank to refrain from lending when private flows are adequate or excessive because the staff are measured by what they do, not by what they don't do".
Another observer says: "It's a huge challenge for Woicke to figure out how to integrate the IFC staff with the country staff at the Bank. These guys have spent 20 years hating each other."
Nevertheless, Wolfensohn's recent "Comprehensive Development Framework" clearly elevated the importance of private sector. The CDF is a highly personal document aimed at reshaping the way the Bank does business. He wanted to make people think "holistically" about the key elements needed to reduce poverty in individual countries. The CDF contains a wide agenda including corporate governance, judicial systems, privatization, private-sector development and social issues. It also has a long-term perspective, spanning 10 to 15 years.
Wolfensohn's little check list
The second theme of the CDF is partnership - the World Bank can't do it all. So, there needs to be a very clear idea who is going to do what as well as where the Bank can be most effective. It's Wolfensohn's little check list, laid out in the form of a matrix. Whenever the Bank sits down with a country, it will go over these issues and how they will play out. Bolivia, Ghana and several other countries have signed up to be test cases.