President Obama's nomination of Dr. Jim Yong Kim is receiving immediate reaction in the global media as an inspired and surprising choice. It is indeed both.
It is inspired not merely because by nominating a Korean-born U.S. national, President Obama virtually assures Asian and some other developing world support for his choice, thereby countering the growing chorus for a non-U.S. national to lead the Bank and virtually assuring his selection, which it does. It is inspired not just because Dr. Kim is the first U.S. nominee to have actual, deep experience as a professional in global development issues (such a novel concept!), which he is. And it is inspired not solely because it reflects the broad and growing ethnic and cultural diversity within the United States itself and thus reflects a multicultural world view that President Obama is uniquely suited to promote, which it does.
While I believe all the above to be true, the central reason this appointment is inspired -- and also surprising (leaving aside the astonishing ability of the Obama administration to avoid having the name leaked ahead of time) -- is that it is the most self-conscious recognition to date that the World Bank's role as principal financier to the developing world has shifted to the point that it is more important to have at the helm of the institution someone conversant in cutting-edge development issues than finance and policy formulation.
Global private capital flows are close to $1 trillion a year nowadays, having dropped below that level during the financial crisis only to rebound more recently to that level or greater. Multinational companies, pension funds, hedge funds, even sovereign wealth funds, that are not private but often act with some autonomy from their national governments, have unprecedented levels of liquidity, and much of it is finding a home in investments int he developing world. Against that backdrop, the World Bank's $40-60 billion a year in new project and programatic finance, including almost half going as interest-free loans and grants to the world's poorest countries, plays an increasingly marginal role in the development prospects of its country partners.
To be sure, the Bank continues to have an outsized influence in the development process, as a global knowledge institution, an unparalleled convener of technical experts and a repository of case-specific best practices that can be shared with its country members, since the Bank is a shareholders' cooperative. And that's the point. At a time when the Bank has passed an inflection point where its knowledge is being valued by its "clients" more than its finance, except in the very poorest countries, the appointment of Dr. Kim, with his acknowledged expertise in global health issues, is a manifestation of that new reality. It reflects a trend that many within the Bank have known about but which has not been much discussed until now.
The fact is that during the financial crisis, the IMF increased its standby resources to somewhere between $500-750 billion, depending upon how one counts, and Christine Lagarde has proposed further expansion of its facilities to over $1 trillion. Other development banks, in worse capital straits than the World Bank, sought capital increases much larger than the World Bank did. And the World Bank failed to ask for an enhancement of its own capital resources in 2008-2009, at the height of the crisis, for the understandable reason (at least in the short run) that at the cusp of the crisis it still held a capital cushion of over $60 billion, which it was able to deploy as a counterweight to the shrinking capital flows from elsewhere. But by the time the Bank sounded the alarm that its resources for increasing lending would run out, the window to seek substantial new capital resources had largely closed. True, the Bank is seeking an $85 billion capital increase that would raise its capital base from $195 billion to $280 billion, but equally true, that sum, and the $30-35 billion the IBRD (the non-concessional lending arm of the Bank) could lend each year, would represent but 3 percent or so of the total flows going to the emerging markets each year.
One presumes that during his three years at Dartmouth, as well as at the WHO, Dr. Kim has had to devote a substantial part of his administrative time in fund-raising activities for the organizations. So it is not as if the need for finance, or a leader who knows how to galvanize support for it, suddenly has gone away, and one assumes Dr. Kim has accumulated some skills in that arena as well. Nevertheless, if he is elected by the Bank's board of executive directors in a few weeks, as is now extremely likely, he will represent a sea change in the leadership of the Bank -- someone who embodies the ever more evident need for a development professional with respected technical knowledge at the helm, and not a financier or policy-maker per se. Whether he will prove to be the right person to enable the Bank to make the very tricky adjustment from being prized more for its finance to being a "go-to" organization primarily as a source of technical and cross-cutting expertise remains to be seen. But his appointment will make that challenge, and how the Bank adjusts to meet it, much more visible above the surface, for all to see. Indeed, to use that oft-overused economic term, it is a paradigm shift.