The World Bank is still important for the financing of major projects. But competition and criticism are growing.
At the spring conference of the International Monetary Fund and the World Bank, central bankers, finance and foreign ministers from all over the world are currently in Washington. But this cannot hide the fact that the World Bank, as an important lender for developing and emerging countries, is increasingly under pressure.
“The World Bank has relatively rigid, very cautious processes,” explains Tobias Heidland, research director for international development at the Kiel Institute for the World Economy. “There, for example, expert opinions are used to clarify whether a project is socially and environmentally compatible, whether it will be profitable. And that takes a long time.”
Lengthy, bureaucratic processes as an obstacle
Emerging and developing countries often view these lengthy, bureaucratic processes negatively. At the same time, the World Bank is strongly influenced by the USA and Europe, the economic power of China, for example, only plays a subordinate role. Two reasons why Brazil, Russia, India, China and South Africa founded the New Development Bank in 2014, which was intended to compete with the World Bank.
During a state visit to China, Brazilian President Lula da Silva again emphasized the importance of the New Development Bank and its potential. The bank frees emerging markets from having to submit to traditional financial institutions, according to Lula.
According to Heidland, the New Development Bank does offer an alternative for emerging and developing countries. She makes fewer specifications, for example with regard to reforms in the political system. “Financing is sometimes a bit more expensive, but it is often quicker. And that is of course an attractive offer».
Criticism of the New Development Bank
Nevertheless, there is also criticism of the New Development Bank’s approach: because the checks are less comprehensive, less profitable projects are also financed. “This can mean that countries become over-indebted with projects that are then not profitable. So it will be difficult to repay the debt,” says Heidland.
Recently, the calls for a reform of the World Bank have also become louder in the West. Just this week, US Treasury Secretary Janet Yellen called for the World Bank to expand its capabilities to support developing and emerging countries in overcoming global challenges such as climate change. The World Bank, it seems, is increasingly under pressure.