Yellen says World Bank needs ‘cultural change’ to better mobilize private capital

FILE PHOTO: U.S. Treasury Secretary Janet Yellen speaks during a news conference at the Treasury Department in Washington, U.S., April 11, 2023. REUTERS/Elizabeth Frantz/File Photo

By Andrea Shalal

BEN GUERIR, Morocco (Reuters) -U.S. Treasury Secretary Janet Yellen said on Tuesday the World Bank had made progress in reforming its operations to better address climate change and other global challenges, but still needed “cultural change” to mobilize private sector capital.

Yellen, speaking at the Mohammed VI Polytechnic University in Ben Guerir, Morocco, said the bank’s governors would this week endorse a new vision “to end poverty on a livable planet” and that its new president, Ajay Banga, was working to turn that new mission into reality.

In addition to improved analytical and diagnostic tools, including country climate and development reports, the bank had begun working on principles for using concessional finance to target support for projects that address global challenges. Concessional finance involves loans at more generous terms than the market provides.

But more efforts were needed to equip World Bank staff to deliver the desired results, Yellen said.

“This will require internal process improvements that increase agility and speed up decision-making without sacrificing quality, as well as cultural change to accelerate private sector mobilization and responsible risk-taking.”

Reforms of the World Bank and other multilateral development banks (MDBs) are a key topic at this week’s annual meetings of the International Monetary Fund and World Bank in Morocco.

Banga, who has called the 16,000-strong organization “dysfunctional”, despite a talented and dedicated staff, told Reuters that he was working to streamline the bank’s processes and speed up decisions, without sacrificing quality.

“I’m just trying to change the internal plumbing of the bank. I’m not building a new house,” Banga said, adding that he was working to improve how different arms of the World Bank worked together and how its staff was incentivized.

Yellen said significant process had been made on boosting the financial capacity of the MDBs and reforms under consideration could add at least $200 billion in new lending capacity.

World Bank governors were expected to lay the groundwork for the issuance of hybrid capital and endorse a portfolio guarantee platform that gives shareholders a new way to contribute to the bank’s work, she said.

But government funding would never suffice, Yellen added, calling on the MDBs to establish concrete private capital mobilization targets and incentives for staff to meet them.

She said the World Bank’s International Finance Corp and MIGA divisions should expand their lending, guarantee and insurance instruments, and find new ways to smartly manage foreign exchange risk.

The bank should also release global emerging market data so private investors can better understand the actual risk and opportunity of investing in such markets.

As a next step, Yellen said Treasury had asked the MDBs to prioritize incorporating “a prudent share” of callable capital — the commitment from shareholders to step in during extreme circumstances — into their capital adequacy frameworks.

Yellen also called for changes at the IMF, including an equi-proportional increase in its quotas to shore up the IMF’s finances and reduce its dependence on borrowed resources. Such a move would increase IMF lending resources, but not immediately change its shareholding structure.

She said the United States also supported a quota formula change that better reflects the global economy, but only “within an agreed-on framework based on shared principles.”

Treasury was also exploring ways to directly increase the voice of emerging markets and developing countries in the IMF by adding another deputy managing director to represent emerging markets and low-income countries, and third executive board chair representing sub-Saharan Africa.


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