‘America First’ Comes to the World Bank

As first reported by Politico on Monday, the US administration has chosen senior Treasury Department official David Malpass as the US nominee for the World Bank presidency. The official announcement of Malpass’s nomination took place earlier today.

With Malpass’s nomination, all eyes now turn to see how the other WBG executive directors respond when formal nominations open on 7 Feb. Will other nominees enter the race? Although an American has held the post of World Bank President throughout the Bank’s existence, a number of voices from civil society, the media and elsewhere, have already encouraged other shareholders to oppose Malpass’s appointment as president (see here, for example), with Justin Sandefur of the DC-based Center for Global Development arguing, “there is no case for Malpass on merit.” Not surprisingly, Malpass’s supporters disagree.

Following Jim Yong Kim’s resignation in January, the World Bank’s Board vowed to undertake a merit-based process of appointing Kim’s successor, but – given that executive directors must nominate potential candidates – the integrity of the process now rests, in the first instance, on other genuine contenders for the presidency entering the race.

Otherwise, the ‘selection process’ risks descending into a farce.

Malpass joined US President Donald Trump’s campaign as an economic adviser in 2016, before being appointed by Trump as Treasury’s undersecretary of international affairs in 2017. He previously served in roles at the US State Department and Treasury under Republican presidents Ronald Reagan and George H.W. Bush.

As chief economist of Bear Stearns in 2007, Malpass infamously predicted that a ‘correction’ in the housing market would be a boon for continued US economic expansion. By 2008, Bear Stearns was nearly insolvent, and was sold to JP Morgan after being bailed out by the Federal Reserve, following the sub-prime mortgage crisis.

Malpass’s apparent lack of clairvoyance is not the only reason why the Bank shareholders should be apprehensive about his nomination.

Indeed, Malpass has been one of the Trump Administration’s biggest proponents of its ‘America First’ approach to trade and multilateralism. In late 2017 Malpass said “globalism and multilateralism” had “gone substantially too far, to the point that they are hurting US and global growth.” He also made numerous statements in 2017 that were critical of the Bank’s lending to China. Climate advocates have also raised concerns that Malpass’s potential appointment could undermine recent World Bank climate commitments, given his opaque answer last year before a Senate Foreign Relations sub-committee on whether the Bank should take further steps to limit its investments in fossil fuels.

However, as noted in a recent FT piece, Malpass’s tone towards the Bank has changed of late: “In recent months, after Mr Malpass helped negotiate US support for a $13bn capital increase at the World Bank, he has become less strident in his criticism of the institution, arguing that he is looking for ways to reform multilateralism.” The capital increase will see the Bank’s lending to China and other upper-middle income countries decrease in the coming years, as it pivots to more lending in fragile and conflict-affected settings, and allots a greater share of its portfolio to climate-related investments.

Since he joined Treasury, there has been significant brain drain from Malpass’s division, reportedly due to a combination of staff aversion to Trump’s ‘America First’ trade policy and clashes between civil servants and Malpass himself. The division oversees US dealings with the World Bank and IMF, as well as the G7 and G20.

Civil society statements on Malpass’s reported nomination:

Urgewald (Germany): Comment on the Nomination of US Treasury Under Secretary David Malpass as World Bank President

Christian Aid Global: World Bank Presidential election: sign of a broken economic system

Oil Change International: David Malpass as World Bank President = Climate Fail