As DOGE reviews all federal spending for wasteful, failed programs, it should train its focus on the myriad failures of foreign aid. There are few better examples of expansion in the face of continued failure.
The World Bank is our poster child. In his Message from the President in bank’s 2024 annual report, the World Bank president states it clearly:
“Rarely in our 80-year history has our work been more urgent: We face declining progress in our fight against poverty, an existential climate crisis, mounting public debt, food insecurity, an unequal pandemic recovery, and the effects of geopolitical conflict.”
And, like any self respecting bureaucracy, the cure for 80 years of failure is: spend more of other people’s money. And add more risk for the taxpayers who are supplying it:
“We are squeezing our balance sheet and finding new opportunities to take more risk and boost our lending.”
Faced with declining support in Congress, former Treasury Secretary Yellen led a move in the bank to loosen capital requirements for bank securities even to the point of allowing non-existent equity in the form of callable capital to be used to underpin its bonds.
And then she asserted that U.S. taxpayers would assume the increased risk.
Callable capital is a commitment of donors (U.S. taxpayers) against which the IBRD sells bonds on the public market. Over the years, this has created a potential $53 billion contingent liability for U.S. taxpayers. Prior to the late 1970’s there were appropriations to cover these amounts, approximately $7.7 billion. Since – and this is the vast majority of the commitment – there have been no actual appropriations. Nor is Congress likely to make such appropriations.
What this means is that the World Bank intends to issue bonds to support its lending backed by thin air.
The IBRD is well aware that there is a problem with callable capital. It launched a major effort in 2024 to try to establish that callable capital subscriptions not backed by actual appropriations from member countries “are legally binding and backed by the full faith of shareholder countries”.
Secretary Yellen reiterated this position in her response to an IBRD request.
You don’t go to such lengths if you are not trying to cover up a problem. Fortunately for American taxpayers, Janet Yellen saying it doesn’t make it true.
Yellen added “To date, no authorizing statute has provided that such subscriptions are not backed by the full faith and credit of the United States.”
The President should specifically clarify the U.S. position on this issue and remove any doubt that any call on U.S. taxpayers is subject to the will of Congress and, unlike U.S. government securities, is not a full faith and credit obligation.
Moreover, all future legislation – including reconciliation bills and continuing resolutions – should assert Congressional authority over spending and include language excluding callable capital as full faith and credit obligation.
The World Bank president has admitted failure.
The President and Congress should move swiftly to assure that U.S. taxpayers aren’t left bailing it out.
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Hi Joe,
Thank you for creating this platform. It is very useful. I worked at the World Bank in the past and agree that it needs a major waste reduction effort. Adding to your comments, I see some other operational issues that I note here. If Trump decides not to end us participation in the Bank, then he should at least demand major cost-cutting reforms.
The World Bank’s main missions concern the raising of living standards in the poorest countries of the globe. Despite this clear focus on the poor, the Bank stunningly keeps 50% of its staff in Washington where it has absolutely no projects. Over 6000 employees work out of the US capital earning significant premiums to afford living in one of the most expensive cities in the world. Meanwhile, their work requires them to travel, often on business class, to their clients. The World Bank must pay for said premium and then also pay for these travel expenses.
The above leads to the absurd situation where, for example, a South Asian or African national would have to relocate to Washington so that he or she can regularly fly back to her home region to support a local project. Equally problematic is when nationals of Western countries move to Washington “to work on development.”
The operational inefficiencies start at the very top of the institution. The World Bank maintains a 25-member resident board that oversees its work. According to some reports, this Executive Board costs the Bank approximately $100 million a year. Yet, there is absolutely no need for a resident board to approve each project when you can just agree on strategy at the ministerial level among Bank members and then delegate investment decisions to committees as it is customary in the private sector. The mere existence of this board is so inefficient that when the Chinese government set up the Asian Infrastructure Investment Bank even Chinese party heads thought this was too much bureaucracy.
Then we have the awkward fact that the World Bank is not actually a bank. It is a think thank or advisory with a portion of its staff working on lending. People fail to realize that a large part of the professional staff works merely on creating reports and events for the public and the clients. The reports are often superficial, condescending, politically impossible to implement, outdated, or simply too long and boring for anyone to care for a read. They are exactly the reports a wealthy institution with money to give would carelessly bestow on its clients who do not pay nor care for any of this service.
Given a lackluster reputation of World Bank reports, donor countries might be better off giving out premium subscriptions for AI services to aid recipients. Indeed, AI would be a much cheaper alternative to reports written or commissioned by an expensive bureaucracy in Washington.
The list of inefficiencies with the World Bank does not end here. The institution has had a massive problem with moving aging staff off its balance sheet resulting in a top heavy and very expensive staff. The staff counts dozens of vice-presidents and managing directors with each earning more than the US president. Many more senior staff, often with no managerial responsibilities, earn more than cabinet secretaries in the US when we consider taxes which World Bank staff do not pay.
As typical with other international institutions, the World Bank has also failed to reward high performers and remove failing professionals from its ranks. The Bank’s human resource policy actually requires managers to give top grades only when the staff is being promoted and not when they perform well. This is done to justify a promotion even when that was not earned. When staff perform well, they would still be given a 3 out of 5 until they achieve promotion on account of their years of service no matter how average those years might have been.
DOGE can finally become the trigger to push through the massive restructuring needed at the World Bank. The Bank needs to trim down its bloated payroll through laying off senior staff, closing its presence in Washington, and shifting operations to the regions of its focus. The salaries can then be reduced an account of lower living expenses in poorer countries. This would save resources and improve efficiency.
Meanwhile, all knowledge-based work must be run under a different entity with different frameworks for staffing and accountability. At the same time, the International Finance Corporation, the World Bank’s private sector investment arm, should be completely divorced from the World Bank. It is counterproductive for everyone involved to run public and private sector institutions under the same human resource and governance framework.
Well said. Your comments are right on target. My only issue is that I do not believe the World Bank or any of the MDBs can be reformed. Are Indermit Gill, the World Bank’s own chief Economist put it so eloquently of the Bank’s recipient countries, “It’s far better to redouble the effort to take control of their own destiny.”