World Bank needs new home outside US

Of the three pillars of the global economic architecture created after World War II, the WTO is based in Switzerland, while the other two, the International Monetary Fund and the World Bank, are headquartered in Washington. The time has come to move at least one of the two out of the United States.

Moving the World Bank makes much more sense than moving the IMF. In particular, the World Bank has no mandate to carry out operations in the United States. In contrast, the most important function of the IMF - which few people understand - is to assess the economic policies of the countries that play the largest roles in the international monetary and financial systems. As long as the United States has the world's biggest economy and its deepest financial markets, it makes sense for the IMF to be based in Washington.

In contrast, the World Bank's operations are overwhelmingly conducted in developing countries. A solid case can thus be made for moving the World Bank. There are three compelling reasons for doing so. First, the world is no longer US-centric. Broad international support for the World Bank (as well as the IMF) will depend on changing the widespread belief that it is an instrument of US policy. Moving the World Bank out of the United States would be a powerful symbolic step toward a global governance system that has broader legitimacy.

Second, the fact that the World Bank and IMF are both located in Washington - in fact, they are right across the street from each other - has contributed to the almost universal perception that there is no significant difference between them. Their missions, however, are fundamentally different. Separation could make each institution more effective.

Third, a move out of Washington wouldn't represent any hardship on the World Bank's staff. Until recently, Washington did offer lifestyle advantages (such as proximity to top educational institutions) that few other countries could match for attracting a top-quality international staff. However, now there are dozens of cities outside the United States offering comparable perks.

The biggest obstacle to moving the World Bank out of Washington is the veto power of the United States. While extremists exist in both political parties who, for different reasons, would like to see the World Bank closed down, Republican and Democratic leaders in the US Congress can be counted on to attack vigorously the idea of moving it. Many supporters fear that Congress will cut World Bank funding sharply if it leaves Washington. While such a reaction would be contrary to long-term US interests, it is easy to imagine this result given the country's current political climate. However, the United States has constrained funding increases for the bank for more than a decade already. It is entirely possible for Europe and countries like China and Brazil to offset any reductions in US funding.

True, a move out of Washington could lead to a loss of control over the operations of the World Bank by the United States. But one has to recognize that a substantial reduction in US influence is inevitable in the years ahead, regardless of where the bank is headquartered. Emerging-market countries will gain influence as their share of global economic output grows continuously. And the costs of moving the World Bank? They could be substantial. However, some of the biggest costs associated with similar moves in the past (such as the construction of new buildings) have been underwritten by the host country, as it anticipates the economic benefits from gaining an employer of thousands of people over many years.

That leaves but one question - relocate to where? To Africa, Asia or Latin America? Putting the World Bank headquarters in either one of these regions might not sit well with the two others. But that battle can be duked out after the principal decision to relocate has been made.

The author, a former US Treasury official, is a contributor to TheGlobalist.com, where a longer version of his analysis previously appeared. The opinions expressed in the article do not necessarily reflect those of China Daily.

(China Daily 10/07/2011 page8)