For decades, the World Bank stood alone in terms of size and influence in emerging market around the world— this is no longer the case. The world has changed considerably since the Bank first began to focus its lending and expertise on the developing world some 50 years ago. In the 1960’s, global capital markets were almost non-existent and all types of international financial flows were tiny by today’s standards. Today, global financial markets, private business, and emerging donors all offer capital and expertise for developing countries. The room is getting crowded, and traditional development banks no longer carry the largest check book.
The rise of China as a global donor and investor serves as a powerful illustration of the changed landscape the World Bank and other similar organizations now occupy: according to McKinsey & Company, while the total level of loans outstanding from the world’s five biggest multilateral development banks stood at $500 billion in 2013, total Chinese outstanding foreign loans and deposits were a staggering $838 billion at the end of 2011. Foreign direct investment totaled $1.45 trillion in 2013, with $778 billion of that total heading to developing countries. Add to this that dozens of developing countries now have investment grade credit ratings, and therefore access to global capital markets. Clearly organizations like the World Bank which previously were juggernauts in an empty playing field are now minority shareholders in a system that is much larger than them.
How, then, should institutions established 50 and 60 years ago evolve to stay relevant when the world has undergone such radical changes? Outdated assumptions that, for example, all donors will strictly adhere to World Bank standards will have to be re-evaluated. The problem here is best framed by the following question: would the World Bank rather build 5 km of new roads that strictly adhere to long-standing labor and procurement guidelines while having no influence on the 495 km of roads built by actors like China (that may not be constructed to the same standards), or would the World Bank rather play a role as one partner among many in building 500 km of roads where it can offer its expertise and some adherence to its standards to make a much larger impact?
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