FT, do you really mean it?

FT, do you really mean that if David Malpass becomes president of the World Bank the Asian Infrastructure Investment Bank (AIIB) dominated by China will become a worthier development bank than WBG?

Sir, in “US makes a poor choice for World Bank chief” February 7, you lash out that if David Malpass becomes president of the World Bank, that will lead to a “dysfunctional organisation that will encourage its activity to shift to other development banks, including the Asian Infrastructure Investment Bank.” Really? Has this do to with David Malpass, or has this to do with someone else who is not to your liking?

In support of your doom you mention that Malpass’ “judgment even on economics, his supposed speciality, is wanting. Notoriously, as then chief economist at Bear Stearns, Mr Malpass was blithely confident about the strength of the US economy in 2007 — a year before the global financial crisis hit and his own employer went under” 

Sir, like many he had confidence in those AAA rated securities that SEC, which supervised investment banks in the US, allowed, based on recommendations of the Basel Committee, Bear Sterns to hold against only 1.6% in capital, to leverage over 62.5 times. I have not read much about you judging the regulators’ specialty wanting.

As for the World Bank you argue that its role is “providing global public goods such as managing scarce water supplies, combating pandemics and coping with the effects of climate change.”

No, its role is not to substitute for governments? The World Bank is a development bank, which means, at least in my book, its role is to help and assist financing countries to develop their own capacities to manage scarce water supplies, combate pandemics and cope with the effects of climate change.

Sir, you know I have a concern about the World Bank, namely that it does not object to the current risk weighted capital requirements for banks. I hold that it should, because risk taking is the oxygen of any development.

Who knows, perhaps someone who has seen first hand what happens if you trust what’s “safe” too much to be safe, might be exactly what the World Bank needs.

@PerKurowski

What I as a former Executive Director, pray that any new President of the World Bank understands

A letter to the Financial Times

Sir, I was an ED at WB from November 2002 until October 2004. During that time Basel II was being discussed. It was approved in June 2004. 

I was against the basic principles of these regulations that had begun with the Basel Accord of 1988, Basel I. That should be clear from Op-Eds I had published earlier, transcripts of my statements at the WB Board, and in the letters that I wrote and FT published during that time. Here is a brief summary of all that 

Since then I haven't changed my mind... that package of bank regulations is almost unimaginable bad.

I pray the next president of the world’s premier development bank, whoever he is, and wherever he comes from, at least, as a minimum minimorum, understands:

First, that risk-taking is the oxygen of any development, and therefore the regulators’ risk adverse risk weighted capital requirements, will distort against banks taking the risks that help to push our economies forward. “A ship in harbor is safe, but that is not what ships are for.”, John A Shedd.

Second, that what’s perceived as risky is much less dangerous to our bank systems than what’s perceived as safe, and so that these regulations doom us to especially large bank crises, because of especially large exposures to what is especially perceived (or decreed) as safe, against especially little capital.

Sir, would you not agree that mine is a quite reasonable wish?

@PerKurowski

Sometimes good bumper stickers are the best way to begin paving the road to a better world.

Sir, Philip Stephens writes: “the US lacks the resources and political will for ‘generational’ projects to transform the Middle East” “Republicans want a bumper sticker world” April 24.

The US Congress Iraq Study Group Report of May 2006 stated: “There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation’s chief natural resource"

If that idea would have been implemented, you can bet the Middle East would have seen much good transformation… and not only there, other places, like Venezuela, would have benefitted immensely from such example.

Unfortunately the same Report then wrote: “Oil revenues have been incorporated into state budget projections for the next several years. There is no institution in Iraq at present that could properly implement such a distribution system. It would take substantial time to establish, and would have to be based on a well-developed state census and income tax system, which Iraq currently lacks.”

As if that was any real excuse. Any of the big credit card company could have set up a program that could have reached 50 percent of the Iraqis in 1 year, with the ambition of covering 100 percent in five years. What a missed opportunity for a real silver bullet.

But the US has other strengths… for instance with respect to oil revenue sharing why not ask Hollywood to make an inspirational movie.

It could for instance depict how a hypothetical country, one like Venezuela in which 97 percent of all that nations exports go directly into government coffers, becomes fundamentally transformed for the better, when some a “Hayek platoon” manages to allow the power of oil resources to flow directly to the citizens.

Recently Marco Rubio stated: “More government isn’t going to help you get ahead. It’s going to hold you back. More government isn’t going to create more opportunities. It’s going to limit them. And more government isn’t going to inspire new ideas, new businesses and new private sector jobs. It’s going to create uncertainty.”

And so that idea would seem to fit the political platform of any Republican who aspires the presidency, and, hopefully, also that of some democrats.

And a good bumper sticker: “Citizen’s should not need to live in somebody else’s business – End Natural Resource Curses” could perhaps be a way to begin it all.

And Sir, you know of course that if there is one bumper sticker I would also like to see in the next elections, that is “Stop bank regulators’ odious discrimination… against the ‘risky’ SMEs and entrepreneurs… that is un-American… that does not belong in the Land of the Free nor in the Home of the Brave”.

@PerKurowski

The Constitution of Honduras contains some strange things.

Sir I refer to your reports on the current situation in Honduras. Are you aware that one of the articles in the Constitution of Honduras actually states that you will “lose your conditions as a citizen if inciting, promoting or supporting continuance or the re-election of the President.” This, though sounding a bit crazy, could be indicative of that the whole issue of a re-election, towards which Manuel Zelaya was undoubtedly striving, is more of an existential issue in Honduras, and which if so would oblige us as a minimum to look much more carefully into what is really happening there.

The world has no representation either

Sir, Wolfgang Münchau in “This gentlemen’s agreement fails Europe too”, July 9, makes a very clear case for why Europe by splitting up the European representation in international institutions such as the International Monetary Fund (he argues that it is to preserve many plum jobs) ends up in fact with having no real representation at all. I understand and agree with his point of view especially since it goes hand in hand with my opinion that since all the votes, and all the Executive Directors, and the Presidents, and so many of its staff are assigned on pure local considerations, it is the “international world”, the global order, or mother-earth itself, whatever you want to call it, that ends up being the most under represented party in these global institutions.

If we are going to be able to manage the global challenges it is urgent we look for means to break away from our parochial local chains. What about splitting at least 50% of the shares among varied constituencies such as migrant workers, multinationals, media, educators, environmentalists, NGO’s, accountants, farmers, manufacturers, service providers, and so on?

The only constituency that has currently a representation in IMF, a 100% one, is the constituency of central bankers and this need to be changed. Europe, if you must insist on naming the next managing director in the IMF then at least do the world the favour of appointing some finance knowledgeable person that has never worked for any central bank. That would provide us with much more needed diversity than just appointing another central banker based on the local consideration that he is from Asia, Africa or Latin America.

And this is no joke. Incest is about the most dangerous limiting factor when it comes to impede clear thinking and effective actions.

The World Bank needs a president credible to the world (and to the USA

My friend and as an Executive Director of the World Bank former colleague Otaviano Canuto is quoted in FT May 22 saying with respect to the appointment of the next president to substitute for Wolfowitz that the selection should be “based on the merits of a plurality of candidates regardless of nationality” and who could argue with that, though of course the problem of defining what are these “merits” remains.

The first and foremost merit that I believe a World Bank president must have besides the basics is to be able to generate enough credibility outside the small world of the World Bank. This is so since no matter how this multilateral twists and bends, the chances for most of the poor of this world to come out of their misery in a sustainable form lies in being able to connect with the real world. Also the World Bank itself is dependent on this connection if it is to strengthen its role as a global public-goods producer.

And so, unfortunately, we might be back to square one where the best we can hope for now, is for the United States to nominate a person that fully and truly represents the United States, and counts with the favourable opinion of Europe. By the way I would never view such a candidate as a foe but, if I did, I much more prefer to work with an impressive foe than with a diddling friend.

Let us not despair though; the time will come when the world will be ripe for Otaviano Canuto’s proposal, and much faster than what we can imagine.

The World Bank, though in a hole, needs to dig deeper

Sir, as a former Executive Director of the World Bank (2002-2004) it is with much sadness that I have followed the Wolfowitz affair. It is clear that he should not have played a role in deciding the terms on which his girlfriend was seconded to the US state department” and that he should leave the Bank but, having said that, we need also to question the general idea of the World Bank seconding anyone, even on reasonable and non interfered terms, just to solve a conflict of interest… permitting someone to have the cake and eat it too.

In contrast I remember while an Executive Director how we spent millions of dollars of the Board’s time just in order to debate a “measly” forty thousand dollar a year increase for the then World Bank president James Wolfensohn, so that he would be able to earn as much as his counterpart in the IMF.

Now, after so much procrastination, by all parties, the only real solution for the World Bank, with or without Wolfowitz, lies in appointing a committee of true outsiders to dig deep and review all the World Bank’s current work related policies. The World Bank, when compared to other similar institutions, is very clean but of course, after 64 years of accumulating problem solving compromises, it should be time for a good scrubbing.

The world needs the World Bank to come out of all this smelling like roses and frankly its good staff deserves it.