Image: Ajaypal Singh Banga, Designated World Bank President. Credit: The World Bank - Photo: 2023

Twin Challenges of Climate Change and Debt Crises Confront Banga at World Bank

By Arul Louis

The writer is a New York-based non-resident senior fellow of the Society for Policy Studies, a New Delhi-based think tank. He can be contacted @arulouis.

UNITED NATIONS, 26 Feb 2023 (IDN) — US President Joe Biden has nominated Ajay Banga to head the World Bank with a mandate to promote climate change policies—the latest iteration of its evolving priorities—but he will also be under pressure to deal with the more immediate task of helping deal with the financial crises facing many in the Global South. 

In Banga, Biden sees an ally in promoting climate-friendly policies that will require the World Bank to make it the priority in its lending—both in lending to green projects and in ensuring that other projects are climate-friendly.

Making the announcement on February 23, Biden said that the former head of MasterCard International “has critical experience mobilising public-private resources to tackle the most urgent challenges of our time, including climate change”.

From the focus at its inception in 1944 on helping European nations recover from the ravages of World War II, the bank’s priorities have evolved to take on the changing problem and climate change is now the major global threat.

Banga will be taking over the reins of the World Bank as its president in the second half of this year amid a tide of financial crises afflicting many countries of the Global South, which have been hit by the rising energy and food prices due to the Ukraine crisis soon after being pummeled by the Covid pandemic.

That will be the more immediate issue competing for his attention.

United Nations Secretary-General António Guterres gave voice to the clamour from the Global South, calling earlier this month for “a new debt architecture that encompasses debt relief and restructuring to vulnerable countries, including middle-income ones in need” while also taking on the compulsions of climate change.

In what could be Banga’s agenda, Guterres said, “In particular, Multilateral Development Banks must change their business model and accept a new approach to risk.

“They should multiply their impact by massively leveraging their funds to attract greater flows of private capital to invest in the capacity of developing countries to achieve the (UN’s) Sustainable Development Goals.”

As Biden pointed out, Banga’s experience of growing up in a developing country would be a help as he tries to bridge the expectations of both the developed nations and the Global South.

Biden said, “Raised in India, Ajay has a unique perspective on the opportunities and challenges facing developing countries and how the World Bank can deliver on its ambitious agenda to reduce poverty and expand prosperity”.

His wide-ranging experience in multinational businesses will also help promote the private-public partnership that both Biden and Guterres seek to grow.

While heading MasterCard, Banga created with other leaders of major businesses the “Priceless Planet Coalition” to boost climate-friendly investments.

Banga serves as co-chair with Vice President Kamala Harris of the Partnership for Central America, an initiative to get private companies to participate in developing that region.

If confirmed by the bank’s board—as expected—Banga will succeed the current president David Malpass who said this month that he was resigning with effect from June, with nearly a year to go in his five-year term, after being embroiled in controversies over his opinions on climate change.

The spot is traditionally reserved for nationals of the US, which holds nearly 16 per cent of the voting power based on its contribution, and the board accepts the nominations of the US president, even though theoretically, any other country can put up candidates.

Since the World Bank’s inception in 1944, Banga will be the second person of Asian descent to head it after Jim Yong Kim, a medical doctor whose tenure was from 2012 to 2019 and reflected an emphasis on health.

There are already two senior officials of Indian origin at the World Bank, Chief Financial Officer Anshula Kant and Chief Economist Indermit Gill. And at the International Monetary Fund, Gita Gopinath is the second-highest official with the title of first managing director.

Malpass, appointed by former President Donald Trump, was seen as a reluctant warrior against climate change. The World Bank has been criticised for financing oil and gas projects, and US Treasury Secretary Janet Yellen reportedly had goaded Malpass to speed up policy changes that would emphasise climate change.

He was dogged by the fallout of his refusal at a New York Times event last year to categorically affirm that climate change resulted from man-made greenhouse gases.

Pressed on the subject, he said, “I am not a scientist”.

Former Vice President Al Gore, a leading climate activist, had dubbed him a “climate denier”, and many others joined in to criticise him even though he made a quick retreat.

Rajwant Singh, the global president of EcoSikh, said Banga’s “ability to mobilise public-private resources to address the most pressing issues of our times, including climate change, was the top factor that prompted US President Joe Biden to announce his nomination for the role.”

“With Banga at the helm of the institution, the climate agenda is expected to be at the centre stage,” said Singh, whose organisation brings the values of Sikhism to the mission of protecting the environment adding that hopefully there will be “an increase in the credit available for the countries around the world to switch towards green energy”.

Banga will be expected to drive the World Bank’s Climate Change Action Plan 2021–2025 based on the GRID approach—Green, Resilient, and Inclusive Development.

This plan, which pursues poverty eradication with sustainability, supports government and private sector clients in climate change adaptation and resilience and reducing greenhouse gas emissions.

The World Bank unveiled last month a proposal to increase its capital to help its push in areas like climate change and the United National Sustainable Development Goals., which Banga will have to pilot.

In a rarity in polarised US politics, Banga with his business background also has the backing of the leading Republican on financial matters in the US House of Representatives.

House Financial Services Committee Chair Patrick McHenry said, “His considerable experience in managing international companies and driving investment to developing countries is what the Bank needs at such a precarious time for the global economy”.

But putting his geopolitical spin, McHenry added, “The next World Bank President must focus on the Bank’s core mission of alleviating global poverty and the necessary reforms to confront China’s economic aggression, rather than progressive pet projects”.

The 189-member World Bank operates through five institutions, the International Bank for Reconstruction and Development, the International Development Association, the International Finance Corporation, the Multinational Investment Guarantee Agency and the International Centre for Settlement of Disputes.

From its initial mission after World War II focused on making loans to devastated European countries it has evolved to include health, education, good governance and the environment in its scope. In 1948 it widened its scope and began financing infrastructure projects in energy, agriculture and transportation in low- and middle-income countries.

By the 1970s it expanded its mission to broader development taking sectors like health, education, environment and rural development. In the 1990s it assumed the arguably political roles of conflict prevention, post-conflict reconstruction, and assistance for countries after major political change. It also began to emphasise good governance and fighting corruption.

During the Covid pandemic, the Bank allocated about $10 billion for providing vaccines.

Ajaypal Singh Banga, whose turban marked his Sikhism in gatherings of the highest echelons of US and international business, was born in Pune in western India to a family that has roots in Jalandhar in Punjab. He received his bachelor’s degree from St Stephens College in Delhi and a postgraduate qualification in management from the Indian Institute of Management in Ahmedabad.

He had worked for Nestle, PepsiCo and CitiBank before landing at MasterCard, where he worked his way up from chief operating officer, to president and chief executive officer, and finally to executive chairman.

After more than a decade at MasterCard, he joined the equity firm General Atlantic as vice chairman. [InDepthNews]

Image: Ajaypal Singh Banga, Designated World Bank President. Credit: The World Bank

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