Since its inception in 1946, the World Bank has had 12 presidents, each of them an American. The practice of choosing an American for the job has gone unopposed given that the U.S. has been the world’s biggest donor nation. Similarly, the Europeans traditionally pick one of their own to run the IMF. This arrangement is known as a “gentleman’s agreement”.

But this year there’s a wrinkle in the World Bank process. A battle is underway among three candidates vying to succeed the incumbent president, Robert Zoellick, whose term ends in June.

Two of the candidates are economists from emerging markets: They are Nigeria’s Finance Minister Ngozi Okonjo-Iweala, who was previously a managing director of the World Bank. And, former Colombian finance minister and Columbia University professor, Jose Antonio Ocampo.

The third candidate, nominated by the White House, is Korean-born American, Jim Yong Kim, President of Dartmouth College and an HIV/AIDS expert. As an anthropologist and physician, rather than a banker or economist, Dr. Kim doesn’t fit the mould of prior World Bank leaders which may not be a bad thing.

Stakeholders outside the U.S. and Europe want to break the tradition of automatically slotting an American in the job. In a world now influenced to a greater extent by the rise of emerging economies, they say that it’s time to re-examine the Bank’s strategic role. The real question is, which nominee can best serve the interests of the Bank and its client countries in a multi-polar world?

American calculus

Unfortunately, the prospect of breaking the gentleman’s agreement seems improbable given that the U.S. is coming into its election season. It’s far more likely that the White House will use its clout — holding the most votes on the Board of Governors — to press hard for its nominee.

Alan Beattie, international economics editor at the Financial Times, quoting an unnamed World Bank official, said: “In a U.S. election year, and given the need to do nothing to upset Congress by appearing weak internationally, the strong feeling around the Bank is that the White House will absolutely insist on getting its way.”

The Obama team knows that if an American isn’t appointed, precious political capital will be spent defending the president  from charges of weakness by his opponents. But, by taking the politically expedient step, the White House is closing the door on a rare opportunity.

Features and benefits

Each of the candidates brings distinctive attributes, but Dr. Okonjo-Iweala is uniquely qualified. She has the experience, skills and perspective to recalibrate the Bank for the multi-polar era. By selecting a capable African woman to run an institution that has a central role in the developing world, the Bank has an opportunity to renew its covenant with client countries.

Raised in a time of conflict and deprivation, she’s become a battle-tested reformer of her nation’s institutions. She’s won some skirmishes and lost others, but she’s never walked away from confrontations.

She has valuable insider knowledge gained in her earlier stint at the World Bank. Knowing the institution from both the inside and outside is an advantage that her competitors can’t match.

As both a two-term finance minister and an economist, Dr. Okonjo-Iweala recognizes that reducing poverty comes from generating economic growth, requiring tough choices in emerging countries where governments have a preponderant role. She knows that the Word Bank has a vital role to play in that mix.

She noted that the Bank must address three challenges confronting client countries in “ways that respect their priorities, their culture and their own processes.” She said, “These three major challenges – creating jobs, investing in the human capital of the poor and building institutions – have to be pursued with vigor.”

The BBC reported, “The three-way fight is attracting increasingly passionate comment from candidates’ supporters. It has also shone a light on the way the World Bank chooses its head.”

The fact that this battle exists at all is proof that a shift in thinking among stakeholders has already occurred. The World Bank now finds itself at a critical junction. One thing is clear: the era of the gentleman’s agreement has passed. A transparent, merit-based selection process is in the stakeholders’ best interests.

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More on this subject?

• World Bank officials and observers weigh in on the selection process at the Bank’s site,
• Here’s an essay in the Economist, Hats Off to Ngozi,
• And my 2011 piece about Okonjo-Iweala (“The Disruptor”).

Addenda, 4/15/12:

• Okonjo-Iweala appeals to ‘cherished values’ Post by CDG’s Lawrence MacDonald,
• Does it matter who runs the World Bank? Post by CDG’s Nancy Birdsall,
• Dr. Okonjo-Iweala interviewed on Fareed Zakiria GPS (aired 4/15/12).

Post-script – The selection of Dr. Kim was announced on 4/16:

• BBC piece (4/16): “Africa’s World Bank Hopes Dashed as Okonjo-Iweala loses,”
• NYT article (4/16): “World Bank Officially Selects Kim,”
• Economist piece (4/16): “Kim for President”.

Related:

• Council on Foreign Relations piece (4/18): “The World Bank Group”

Related posts:

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First off, the term ‘emerging markets’ was coined in the ’80s to describe rapidly growing economies with low-to-middle per capita income. They comprise over 80% of the world’s population, representing about 20% of the world’s economies.

Countries that fall under this umbrella are incredibly diverse ranging in size from (Singapore) to massive (China and India). They’re growing at varying speeds—merely “quick” (South Africa, Mexico and Chile) to “breakneck” (China, India, and the Gulf states).  And, their fortunes are linked to those of developed economies. In fact, many economists hold that when the United States sneezes, the EMEs catch pneumonia.

Or do they? Not so much, say advocates of the “decoupling,” the notion that emerging markets are broadening and deepening to the point where they no longer depend on the mature markets for their growth.  Decoupling accounts for emerging market stocks’ overperformance these last few years.  But is decoupling really happening?

Last May, Merrill Lynch economist David Rosenberg, told the NYT’s Daniel Gross, “I find it hard to believe that the rest of the world is going to be immune to a consumer sector that’s primarily responsible for pulling in nearly $2 trillion of the world’s output.”  His take was, “Before we can say there’s a decoupling, we have to wait for a sneeze—all we’ve had is a runny nose.”

The U.S. economy sneezed (sub-prime mortgage crisis) and coughed (credit crisis). The U.S. economy is sounding more bronchial by the day.

Mr. Rosenberg, and his cohorts may have been vindicated. In January EME stocks were rocked. And, they failed to get much relief from the medicine–$145 billion stimulus package. Hong Kong’s main index dropped 5.5% — its biggest loss since Sept. 11, 2001—while India’s fell by 7.4%. Even Brazilian stocks – darlings of the EME — dropped 6.6%.

There is some degree of decoupling. While certain markets—mature and developing—are susceptible to certain market forces other markets simply aren’t because today there are lots more variables at play.  The global economy is growing up rapidly and relationships among markets are becoming more complicated.

This increasing complexity is due to the fact that resources no longer flow exclusively from mature markets to emerging regions as they had in the past. For example, both the GCC’s and Africa’s mineral resources are being hungrily devoured by China to the benefit of all three economies. This is conferring a protective effect on them which wasn’t possible in prior cycles.  Flows of knowledge and capital are becoming omni-directional and multifaceted.

So?  It’s a classic “good news, bad news” story for mature economies, like the U.S. and EU. The good news: healthier, emerging markets can continue to buy products from mature economies like U.S. and Europe, hastening their recovery.  But the bad news: the price of oil will likely remain higher, longer — despite the reduced demand for oil among mature economies.

And, let’s consider the implications for Western product-service providers who see opportunities for delivering services to some of these EMEs.

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