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Former Trade Representative Nominated to Head World Bank

May 30, 2007 at 6:05 PM EDT

GEORGE W. BUSH, President of the United States: I am pleased to announce that I will nominate Bob Zoellick to be the 11th president of the World Bank.

RAY SUAREZ: Robert Zoellick, the president’s nominee, will be charged with putting the World Bank back on track after the tumultuous tenure of Paul Wolfowitz. Wolfowitz will step down on June 30th, after an internal investigation found he violated ethics rules in arranging a large raise for his girlfriend, Shaha Riza, also a bank employee.

At this morning’s announcement, the president had high praise for his nominee.

GEORGE W. BUSH: Bob Zoellick understands that there are about 1 billion men, women and children who live on less than one dollar a day, and he’s committed to doing something about it. The United States has a moral and national interest in helping poor and struggling countries transform themselves into free and hopeful societies.

ROBERT ZOELLICK, Nominee, World Bank President: This work, the purpose of the World Bank, is not about charity. The United States has been a strong supporter of the World Bank since its inception. The bank’s reliance on markets, investments, sound policies, good governance, and partnerships for self-help are in keeping with the values that Americans esteem.

RAY SUAREZ: Zoellick served as the president’s trade representative from 2001 to 2005. Then in 2005, he became deputy secretary of state, where he worked to end conflicts across the globe, including peace talks in Sudan. Zoellick stepped down from that post last June, to become an executive at Wall Street giant Goldman Sachs.

His next role will be overseeing the bank, founded in 1945 to help rebuild Europe after World War II. Since then, its mission has evolved to providing assistance to developing countries. The 185-member institution provides more than $20 billion a year for projects that improve infrastructure, like building dams and roads. The programs also focus on education and fighting diseases like AIDS and malaria.

One of the bank’s main programs is providing interest-free loans to impoverished countries, but the scandal surrounding Wolfowitz’s departure has led to a number of questions about the bank itself, including debate over whether the presidency should continue to go to an American. As the bank’s largest donor, the U.S. has traditionally appointed the bank chief.

It’s also led to speculation about what the bank’s new role in the world should be and if there’s still a need for the institution. On the NewsHour, Andrew Young, a former U.S. ambassador to the U.N., suggested the World Bank had outlived its usefulness.

ANDREW YOUNG, Co-Chairman, Good Works International: We might not need the World Bank, if it continues like it is. It takes so long for them to approve and evaluate projects. And the people who are approving and evaluating projects have never done projects themselves.

RAY SUAREZ: Today, Zoellick said he recognizes the challenges ahead of him.

ROBERT ZOELLICK: The World Bank has passed through a difficult time for all involved. There are frustrations, anxieties and tensions about the past that could inhibit the future. This is understandable, but not without remedy: We need to put yesterday’s discord behind us and to focus on the future together.

RAY SUAREZ: Zoellick’s nomination as World Bank president still needs to be approved by the 24-member World Bank board.

Zoellick's qualifications

Kenneth Rogoff
Harvard University
I think [Zoellick's] had a history, at least behind the scenes, of supporting the bank. He believes in it and presumably has a vision for it.

RAY SUAREZ: And for more, we're joined by Kenneth Rogoff, professor of economics at Harvard University and visiting fellow at the Brookings Institution. He served as chief economist at the International Monetary Fund from 2001 to 2003.

And Sebastian Mallaby, senior fellow at the Council on Foreign Relations and columnist for the Washington Post, he's the author of "The World's Banker: A Story of Failed States, Financial Crises and the Wealth and Poverty of Nations."

And, Sebastian, what do you make of the appointment of Robert Zoellick to replace Paul Wolfowitz?

SEBASTIAN MALLABY, Council on Foreign Relations: I think it's basically a good choice. I mean, Zoellick was associated with three main policies when he was in government recently. And I think on all three of them he gets a pretty good grade.

One was framing the U.S.-China relationship, where I think he did more intellectually to put that in a good context than anybody else. Another was negotiating peace in Darfur. The peace obviously failed, but I would say he made more diplomatic progress on that than anyone else did before or since.

And the other thing was launching the Doha round of trade talks, which was, of course, supposed to be focused on development. He was the moving spirit in getting it launched. So, again, I would say he made more progress on that than people have, either before or since.

RAY SUAREZ: Professor Rogoff, what do you think of the choice?

KENNETH ROGOFF, Harvard University: Well, I think, if it had to be an American, he's a solid choice. First of all, he's very pro-trade and -markets, and they've done a lot more to alleviate poverty in places like India and China than any amount of aid has.

He's a committed multilateralist, which is not necessarily easy to find in parts of Washington these days. And last but not least, I think he's had a history, at least behind the scenes, of supporting the bank. He believes in it and presumably has a vision for it.

Challenges for next World Bank head

Sebastian Mallaby
Council on Foreign Relations
I think Zoellick is good at sort of the public face, good at the political strategy of what the bank should do, but what he needs to do is get somebody who can implement that internally in a very difficult bureaucracy.

RAY SUAREZ: Well, as we mentioned earlier, he's taking over, if approved, at a difficult time. One international economist said today it's going to be hard to put Humpty-Dumpty back together again. What's Zoellick's first job, if he takes the job now?

KENNETH ROGOFF: Well, I think his first job is probably to smooth over relations with the staff, where Mr. Wolfowitz just had a very rocky time. They are the core of what the bank has to offer, its technical assistance, its knowledge, its experience. Without the team, it doesn't mean anything to be the manager, and I think that's the first thing he has to do.

The second thing, of course, is he has to go out hat in hand, raising money, because the bank's on a cycle where it constantly needs money, maybe $20 billion for the next three years. And he has to convince all these capitals around the world to give it to him, even though a lot of them are quite angry at the bank and still angry that it's yet another American as president.

RAY SUAREZ: Well, Sebastian, with that anger the professor mentioned, does Mr. Zoellick get a little bit of breathing room to get those projects started of fixing the bank?

SEBASTIAN MALLABY: I think the typical pattern is that there is a honeymoon for three or four months, partly because there are always going to be factions in the staff. And they all see an opportunity, when the new guy comes in, to kind of stick onto him and advance their particular cause.

And then there's going to be a sort of, you know, a loss of the honeymoon, the end of the honeymoon, when some of these factions don't get what they want. And that's where the rubber hits the road.

I think the main thing he's got to do is to fasten on a good chief operating officer, because it's a labyrinthine organization of 10,000 people, lots of disputatious, extremely smart, highly educated PhDs, and they're going to be critical if you don't do a good job.

And so to get somebody who can implement the vision, I think Zoellick is good at sort of the public face, good at the political strategy of what the bank should do, but what he needs to do is get somebody who can implement that internally in a very difficult bureaucracy.

The purpose of the World Bank

Kenneth Rogoff
Harvard University
I think that the top priority for Zoellick is very quickly to get an idea, 'In five years, where do I want the bank to be? What is my vision?'

RAY SUAREZ: Well, he said today in his acceptance that one of his first jobs, he thought, was to go out and meet the professionals of the bank and begin that relationship, along with the partners and contributors of the bank. And he said "to listen to their perspectives on how the World Bank can best fulfill its purpose."

Is that in dispute right now? What is the purpose? What do people understand the purpose of the World Bank to be?

SEBASTIAN MALLABY: In a very general sense, everyone says -- and that's right -- the World Bank's purpose is to relieve poverty. The difficulty comes when you try to define, what do you do to relieve poverty? Because it's a multifaceted problem.

You know, more roads in some areas in rural Africa can help you to get farm goods out to the market, and that can relieve poverty. Or it could be that you need to have more clinics, so people are well enough to actually work. Or perhaps they need education.

Or maybe the macroeconomic environment around all these things need to be right, because if you've got hyperinflation, no one can get out of poverty. Or maybe it's corruption. So there are all these different issues under the heading of poverty relief, and that's where I think Zoellick needs to pick a theme, partly just for sort of inspiring people to believe in it. You can't just say, "I'm for everything." You've got to say, "Here's where I'm trying to focus. Here is my vision."

RAY SUAREZ: Well, Professor, with more than 180 members, does an answer to the question, "What is the World Bank for in 2007?" Does the answer depend on who you ask?

KENNETH ROGOFF: Absolutely. I mean, it's an incredible muddle. The World Bank is a sponge for every do-good idea to relieve poverty. I think Sebastian is absolutely right that the next president, Zoellick, needs to regain its focus.

They haven't just experienced mission creep; they've had mission sprawl. They're just all over the place in religion, in gender and development, health and development, education development, microstructure and development, all good things, and there are dozens others, but they simply can't do it all. They need to have more focus.

And I think that the top priority for Zoellick is very quickly to get an idea, "In five years, where do I want the bank to be? What is my vision?" And try to execute it in a way that brings everybody on board and doesn't just try to, you know, do it by himself, but he has to think about it.

RAY SUAREZ: But having made the point you just made, what is the bank good at? If it was going to say, "OK, no more mission sprawl, let's pick the two or three things that we're really good at and just do that," what is it?

KENNETH ROGOFF: Well, I mean, it's such a big animal. This is tough, but I think there are a couple of things it does well. One is, it calls itself a knowledge bank. It takes ideas and development experiences from all over the world, shares them around, and basically provides information free or at low cost to a lot of people.

They don't necessarily tell countries what to do, but they say, "You know, look, China did this. They tried this in Brazil. You know, show us your problem. We'll show you some other experience." I think that's a great contribution. And then, more broadly, their technical assistance, where they go out in the field.

Now, I have to say, on the knowledge bank they spend about 2.5 percent of their budget. And another thing that Zoellick needs to look at is spending more on that and maybe less on his executive work, which accounts for three times that much.

Focusing the World Bank's role

Sebastian Mallaby
Council on Foreign Relations
[O]n the question of the poor countries needing grants, I mean, the World Bank has partially acknowledged that, because it's shifted from making subsidized loans, in part, to making grants, so there's now both options for the really poor countries.

RAY SUAREZ: Well, Sebastian, you heard Ambassador Andrew Young a little earlier, and that knock on the World Bank is fairly widespread, that the truly poor need grants, not loans, and the sort of new, emerging global middle class -- the Brazils, the Turkeys, the Thailands -- can get the money they need to borrow from worldwide capital markets, so you really don't need a World Bank.

SEBASTIAN MALLABY: Well, on the question of the poor countries needing grants, I mean, the World Bank has partially acknowledged that, because it's shifted from making subsidized loans, in part, to making grants, so there's now both options for the really poor countries.

And on the middle-income countries -- the Chinas, the Brazils, and so forth -- I think there's a lot to be said for staying in those countries. Even though they can borrow on private capital markets, there are global public goods.

There are things that the market won't do enough of by itself, for example, reducing carbon emissions. You need to give China an incentive next time it builds a coal-fired power plant that the technology should be clean coal, because China by itself won't capture all the benefits of the clean coal. And, therefore, why would it do enough of that?

So I think using the World Bank as a technical institution to come in and give the technology transfer, maybe give some financial subsidy for doing that, that's a very good mission for the World Bank in the future.

RAY SUAREZ: But to use Sebastian's example, Professor, if the money is tied, if the World Bank lends money and says, "Well, we'll lend you the money, but only if you do this and this and this," global capital markets say, "We'll lend you the money as long as you pay it back." They don't have all those conditions.

KENNETH ROGOFF: Yes, but, I mean, the idea that you want to accomplish that by making loans, I think, is really something that's 60 years old. China has more than a trillion dollars in reserves, a lot of which are U.S. treasuries. The World Bank's lendable resources are a tiny fraction of that. The idea of the World Bank going in and making loans to a country with a space program, building nuclear submarines, it's just an absurdity.

There are very important issues about technology transfer, and I think especially in clean coal, in emissions. And that's something that needs to be worked out among the trade representatives, trying to find ways to share information. And I think the World Bank can provide technical assistance, but the idea that this needs to be packaged in with a loan to this very liquid country, I think, makes no sense.

RAY SUAREZ: Gentlemen, thank you both.

SEBASTIAN MALLABY: Good to be with you.