who will be next World Bank President What will they do


Double threat to World Bank funding. As if the threat to the World Bank's IDA soft-loan window wasn't bad enough, now people are muttering that the bond markets might give the institution a kick where it hurts - in its credit rating.

Among others the Financial Times has been urging European governments to signal their displeasure with the Wolfowitz regime at the Bank by using explicit threats to withhold funding from the current replenishment of IDA.

Now we hear people are discussing whether the bond markets (where the Bank's other arms raise a large proportion of their operational funding) may react. The IBRD (middle-income part of the Bank) gets about $10-15 billion a year from international bond issues. World Bank bonds have historically always received a very good credit rating – AAA. Rating agencies and investors believe there is very little risk of IBRD or IFC defaulting on this paper is that the WBG’s shareholder governments (principally US, Japanese and European governments) would be ready, willing and able to meet any call on capital in a imtely fashion in the event of a major problem. Basically, the assumption is the US and others would bail out the World Bank Group.

But does this still hold true? A well-placed commentator (who needs to remain anonymous) has written into worldbankpresident.org stating his/her concerns: "With the current crisis – and especially if Wolfowitz fights to hang on and the warfare continues for months – I wonder if this presumption by analysts and investors still holds true, and if their confidence in shareholder government support for IBRD and IFC is diminished, is this (likely to) have a detrimental effect on WBG bond ratings and their future ability to raise money in the capital markets?"

They continue: "Add to this the effect Wolfowitz is having on the WBG’s ability to replenish IDA funding, and the problems he has caused for dealflow and, potentially, portfolio quality, over the last year or so (eg the massive underspend in Africa followed by the current ‘surge’ to make up the difference before the end of June). If the free market itself starts to penalise the WBG for the sins of Wolfowitz, purely on capital risk grounds, that would be...interesting!"

The surge mentioned above means that the World Bank's board is supposed to be especially busy in the next ten weeks leading to the end of the Fiscal Year. The Bank has always had this 'bunching season', at which time many people argue that dubious loans get approved without much scrutiny. About a month ago GAP produced a very interesting release on this issue, complete with links to graphic World Bank graphs showing the gravity of the problem this year in relation to Africa. This time the board has bigger issues on its plate - including a potential collapse in Bank funding.

This issue is also touched on in a letter to the FT today from a former World Bank senior communications staffer, Tim Cullen. As well as a nice dig at "Mr Wolfowitz's principal aide who practised the 'Roach Motel' school of management (the documents check in to the president's office but they don't check out)" Cullen hints that a new president for the Bank should be able to "inspire and reassure the bank's staff, its member governments and the capital markets".

Your views welcome. Write in to contact@worldbankpresident.org.

Alex Wilks ~ April 25, 2007

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