As Jim Kim steps down, a tumultuous World Bank presidency comes to an end

Posted at DEVEX 

By Sophie Edwards // 04 February 2019

LONDON — On Oct. 2, 2012, the World Bank’s Preston Auditorium is packed with staff waiting to catch a glimpse of their new leader. Jim Kim, the 12th president of the world’s most influential development bank, enters the auditorium to cheers and applause. Some staff hold up their phones and iPads to film his remarks.

“Never has the world been more in need of what we can do,” Kim, a medical doctor and public health leader, tells the enthusiastic crowd.

Fast-forward two years and the cheers have turned to boos when Kim walks onto that same stage. Staff routinely take to the bank’s internal message system — and to the press — to rail against Kim’s deeply unpopular reform package, made worse by the revelation that the chief financial officer leading the cuts has been given a nearly $100,000 bonus. The once inspiring Kim is now seen by many as an arrogant autocrat, hiring and firing employees at will.

“It was more like the court of Louis XIV than a serious organization,” one employee told Devex on the condition of anonymity.

But while his presidency was tumultuous, Kim is not without his supporters. They argue that while he may have failed to win over those inside the bank, he was successful in selling the institution to those outside it. Kim increased shareholder confidence in the bank, put it on a more secure financial footing, and increased its relevance by pivoting to work on “public goods” and human development. He also pushed the institution to invest in fragile and conflict-affected states, they say.

“Re-electing Kim as early as possible … [was] a way to ring-fence the presidency of the World Bank from a possible anti-multilateralist [candidate] from the U.S. He was re-elected because he was supposedly willing to continue … and then suddenly we have this early exit,” said Otaviano Canuto, a World Bank executive director at the time of Kim’s reappointment.

In the wake of Kim’s abrupt resignation, Devex spoke with more than a dozen of his former colleagues, staff, and World Bank experts, about the legacy Kim leaves behind. Beneath the noise of a disruptive presidency, did Kim succeed in achieving what he initially set out to do? Many of them spoke to Devex on the condition of anonymity to preserve professional ties.

A new vision and a stronger, leaner bank

The World Bank that President Kim took over in July 2012 had a problem. An institution built to use public money to finance projects in developing countries found itself in a world flush with private capital. Newspaper editorials at the time dismissed the bank as irrelevant, while others decried it as dysfunctional and corrupt and called for a more democratic, accountable, and development-focused institution.

Against this backdrop, Kim’s challenge was to “articulate a new vision for the institution,” according to one senior bank employee. Within months, Kim set about creating a new mission statement, which ultimately produced the “twin goals” of ending extreme poverty by 2030 and boosting shared prosperity among the poorest 40 percent of the world. While some dismissed the goals as mere “sloganeering,” others see it as an example of Kim’s talent for big picture leadership.

“The place where Jim Kim really excelled … he was extraordinary in articulating a vision and mission … he was truly a voice for the World Bank, and he could go and have conversations with heads of state and other senior global figures and excite them about the role of the bank and development,” said Nathan Sheets, the U.S. Department of Treasury under secretary for international affairs at the time.

There were also redundancies, pay freezes, and benefit cuts, made more difficult for staff to swallow after a World Bank staffer named Fabrice Houdart claimed that Bertrand Badré, the man brought in to oversee significant cost cutting, had received a $94,000 performance bonus.

Badré told Devex the payment was not a bonus but instead a “scarce skills premium,” which had been offered, “by the board to recruit people with specific skills.” Badre was not the only one to receive such a premium, and staff only became aware of the payment after he requested it be recorded in the bank’s annual report for transparency, he said.

In 2017, after Kim appointed Kristalina Georgieva to be the bank’s CEO, the general consensus was that things improved. Georgieva, a popular bank veteran, repaired some of the damage done by Kim’s reform process, in part by undoing pieces of it, according to a number of staff and former staff.

“Many would say the restructuring has been largely reversed since Kristalina arrived and the country directors are now largely back in charge,” said Paul Cadario, a former senior bank manager. The vast majority of the senior managers Kim appointed have since left the bank, he added.

But while even Kim’s supporters admit the process was handled poorly, they say reforms were necessary to appease the bank’s shareholders, who were unhappy about escalating administrative costs and “siloed” work streams.

“The case for shaking things up inside the institution and trying to make it fit-for-purpose … was strong [and] I would give him [Kim] mixed grades for the reform. It could have been implemented with more finesse,” Sheets said.

With the noisy reorganization largely behind him, Kim’s next step was to define a new set of development challenges for the bank, which he referred to as “global public goods,” and which would push the institution outside its infrastructure-heavy comfort zone.

Broadening the bank’s remit

In 2016, as development institutions grappled with their collective failure to respond rapidly to West Africa’s Ebola crisis, Kim launched a new initiative aimed at putting the bank front and center. Together with major insurance companies, he created the Pandemic Emergency Facility, designed to quickly mobilize funding and ignite a new insurance market for future outbreaks.

“What he did to respond to the Ebola crisis was really important … he reached out aggressively and very early in a space the World Bank doesn’t normally occupy,” said Karen Mathiasen, U.S. representative on the board during Kim’s presidency.

The Syrian refugee crisis exposed another gap in the bank’s financial arsenal. Jordan and Lebanon, middle-income countries that were ineligible for concessional financing, were buckling under the pressure of an enormous influx of refugees. Kim tasked his team with finding a solution. They created the Global Concessional Financing Facility, which allowed the bank to break its own rules in cases where individual countries were shouldering global responsibilities to host refugee populations.

Getting the bank to focus on these global shocks — the “big challenges facing our sector” — was the most important part of Kim’s legacy, according to Cindy Huang, a senior policy fellow at the Center for Global Development.

“The strength the bank brings to these conversations [is] difficult to overestimate,” she said.

As the bank moved into new territory, it also moved closer to the United Nations. Kim leveraged personal relationships — including with António Guterres, the former U.N. refugee chief turned secretary-general and his predecessor, Ban Ki Moon — to shape the bank’s policy and image.

That approach served Kim particularly well as he confronted the unexpected challenge of navigating the bank’s relationship with a skeptical U.S. Trump administration. At the behest of the newly-elected President Trump’s daughter, Ivanka, Kim set up the Women Entrepreneurs Finance Initiative, or We-Fi. The move was widely interpreted as an attempt to win over the White House. Some saw it as a savvy maneuver — others as cynical politics.

Kim is also credited with drawing the bank into the climate change arena. He set ambitious climate finance targets, announced an end to World Bank financing for oil and gas extraction and exploration, and tightened rules on lending to private banks with fossil fuel investments on their books. These reforms are now being emulated by other multilateral development banks.

Some climate advocates, such as Alex Doukas, program director at the Washington-based campaign group Oil Change International, worry Kim has left the “job half done.” More reforms are needed at the bank, and those changes Kim did make risk backsliding under a less climate-friendly World Bank president, Doukas warned.

Kim’s last big “global public goods’” project was the Human Capital index, launched in October 2018, to entice client countries to spend more on health and education. Even one of Kim’s harshest critics, Harvard professor Lant Pritchett, gave the index a positive review, praising its attempt to measure learning outcomes as opposed to just inputs.

Having diversified the bank’s portfolio to include long-term, intractable development and humanitarian challenges, how was Kim going to pay for it?

Boosting the balance sheet

Perhaps Kim’s greatest achievement — and the one for which even his fiercest critics give him credit — was persuading shareholders to cough up an extra $13 billion in financing. Politically, the timing was bad — the Trump administration, in power for only a year, had made plain their view that multilateral institutions should have less money, not more.

Kim pushed aggressively for the capital increase even against the advice of some of his staff who thought it was a “reckless” time to ask, Mathiasen recalled. Georgieva also played a crucial role in securing the deal — which involved accepting a robust reform package for the bank — and was known to have impressed U.S. Treasury officials during the negotiations.

Kim deserves credit for “making a strong case for the capital increase in the face of complex global challenges,” Mathiasen said.

“To get a capital increase in this environment was quite extraordinary,” Sheets said.

While Kim pushed the bank’s shareholders for more cash, he also oversaw efforts to use the institution’s existing financial resources in more creative ways — including the approximately $150 billion held in its concessional lending arm, the International Development Association.

These assets were being underutilized, according to Badrė, the bank’s chief finance officer and managing director from 2013-2016. Badré’s team developed tools, including the first IDA bond, to allow the bank to borrow from capital markets against these funds. Leveraging IDA was key to securing the record $75 billion IDA18 replenishment, Badré told Devex — though that victory materialized after Badré’s controversial departure.

“The Word Bank Group is in much better shape in 2018 than it was in 2013 … Jim Kim deserves a lot of credit for these achievements,” said Frank Heemskerk, a former executive director to the Netherlands.

While Kim worked to expand the bank’s financial capabilities, he also publicly acknowledged that institutions such as his own had limited scope to tackle the world’s biggest problems. To be truly effective, the bank must reinvent itself as an “honest broker,” dedicated to pulling private capital toward development challenges, Kim believed.

Kim coined memorable slogans to encapsulate this message — “maximizing finance for development” and “billions to trillions.” He hoped to shift the development community’s focus from the “billions” of official development assistance to the “trillions” of investment needed to achieve the Sustainable Development Goals.

“Getting the World Bank to emphasize the crowding-in possibilities … to have a multiplier and accelerator effect on the private sector … was genius and the major innovation in recent years … which will hopefully be a template for other development finance institutions,” said Canuto, the former executive director from Brazil.

This approach signaled a greater role for the bank’s investment arm, the International Finance Corporation, and calls for increased collaboration with the bank’s lending activities. However, the capital increase package came with new demands, including a requirement that IFC direct between 15-20 percent of its investments in fragile and conflict-affected states by 2030. IFC’s CEO Philippe Le Houérou has admitted that finding bankable projects will be tough and expensive, a view backed up by a recent bank evaluation of its investments in fragile and conflict-affected countries.

Trouble brewing

While the bank was shifting its attention to private sector investment in nascent markets, China was positioning itself as the infrastructure lender of choice for low-income countries through its sprawling Belt and Road Initiative. Amidst increasing concerns that BRI could push low-income countries into debt distress, some have questioned Kim’s support for China’s mega infrastructure push.

“When the World Bank jumps on board a narrative like Belt and Road then it adds credence to what is nothing more than a narrative. Larger countries can potentially withstand the pressure of wanting to be on board … but smaller ones end up taking on something that could end up being quite risky for them,” an emerging markets infrastructure expert told Devex anonymously in order to avoid disrupting business relationships with the bank.

The fact that BRI is deeply unpopular with the Trump administration — which has led an increasingly aggressive push against China — also raises concerns about the bank’s political position. Kim’s pro-BRI stance could reignite old tensions at the board over China’s continued borrowing from the bank, according to some experts. Others worry It could have the unintended consequence of pushing the U.S. to replace Kim with a candidate who is tougher on China.

Recent reports that U.S. Treasury Under Secretary David Malpass, a vocal critic of the multilateral development banks, is a front-runner for the position, have done little to assuage these fears.

In his few public statements and messages to staff since the announcement of his resignation, Kim has depicted a World Bank that is better positioned today than the institution he inherited, with strong leaders and a stable financial outlook.

However, Kim’s abrupt decision to leave the bank in the hands of an unpredictable White House ensures he will be better remembered for a quality that defined his tenure: disruption.

While Kim’s supporters will point to an institution that has been redefined, recapitalized, and repositioned for a new era, the president’s final decision — to leave — will do little to convince his detractors that he always acted with the bank’s best interests at heart.

In the end, Kim’s legacy may hinge on what happens next.

Update, Feb. 4: This story was updated to clarify the nature of the payment to Bertrand Badré.