Resident Fellow  Desmond Lachman

Paul Wolfowitz's imminent departure from the World Bank is likely to raise new questions about whether its president must necessarily be an American. Such questions could hardly be timelier now that the bank's credibility is in tatters. However, it would be a great pity if the debate over Wolfowitz's successor were to detract from deeper questions as to how the World Bank should be fundamentally overhauled to make it an institution that's more effective in alleviating poverty in today's highly globalized international economy.

Since the Bretton Woods institutions were established in 1944, there has been a cozy unwritten agreement between Europe and the United States as to who gets to nominate the heads of the International Monetary Fund and the World Bank. Under that agreement, Europe has always nominated the IMF's managing directors, while the United States has always nominated the World Bank's presidents.

At a time when the World Bank increasingly chastises its client countries for poor governance, it would seem anachronistic for the United States to retain its monopoly on choosing the bank's president. Such an arrangement deeply politicizes the bank's management as all too many of the presidential choices over the past 60 years would attest.

More serious still is the fact that the present arrangement unnecessarily restricts the pool of talent that could be tapped for running an institution with as important a mission as the World Bank. Might not Arminio Fraga, the former Brazilian Central Bank president, or Kemal Dervis, the former Turkish finance minister, or Ernesto Zedillo, the former Mexican president, have a better understanding of development issues than yet another American political appointee with little background in the emerging markets?

The need for capable management at the World Bank appears to be all the more pressing in view of the fact that the bank has very little to show for the many tens of billions of dollars that it has channeled to the emerging markets. Extensive research by scholars like William Easterly of New York University conclusively show that those countries that have been the largest recipients of World Bank loans have performed no better, and oftentimes worse, than those countries that did not receive the bank's favors. And to make matters worse, nations like China and India, which have ignored the bank's nostrums, comfortably outperformed those countries like Russia and Argentina that were more receptive to World Bank advice.

To his credit, Wolfowitz did make the reduction of corruption a centerpiece of his mission at the World Bank. However, he limited himself to halting bank lending to Uzbekistan and but a few of the world's other most corrupt countries. He did so even though, by the bank's own evaluation, as many as 54 countries that are still recipients of World Bank funding are about as corrupt as Uzbekistan.

A more serious failing on Wolfowitz's part in addressing the global poverty issue was his tendency to compound the errors of his predecessor by over-extending the World Bank's mandate. As Easterly correctly reminds us, beyond poverty reduction, the World Bank's goals now extend to such open-ended issues as securing children's and women's rights, promoting world peace and attaining the Millennium Development Goals.

By extending its mandate, the World Bank has not only lost focus on its primary goal of poverty reduction but has also made it difficult for its funders to hold the bank accountable for its core activities. This has to make one wonder whether the world's poor would not be better served by a less grandiose bank with a focus on only those objectives that are truly relevant to poverty reduction. These narrower goals might include the eradication of debilitating illnesses like malaria, feeding the hungry and supplying clean water.

The World Bank could also benefit from radical reform with respect to the disproportionate amount of money that the bank lends to those countries that least need it. The World Bank's own annual report highlights the fact that in 2006, more than 50% of the bank's lending went to as few as five middle-income countries: Brazil, China, India, Mexico and Turkey. And this was the case even though each of those countries is presently flush with foreign exchange and now has more than ready access to the private capital market.

China is probably the most egregious example of a country that should long since have graduated from World Bank borrowing. After all, China is now sitting on a mountain of over $1 trillion in international reserves and is adding to those reserves at a mind-boggling rate of $250 billion a year.

The World Bank lamely insists that it must stay financially involved in China if it is to have any influence on China's economic development. Never mind that the bank's Chinese loan program is but a tiny fraction of the flood of private-sector money flowing into China. Never mind that the bank could better use those resources to materially transform the many African countries starved of foreign capital and lagging so dramatically behind the rest of the world.

In today's world, where poverty remains a scourge in all too many countries, there is still very much a need for a World Bank. However, what is needed is a bank that is better attuned to addressing those poverty issues--all of which highlights the overriding importance of choosing the most highly qualified person as World Bank president.

Desmond Lachman is a resident fellow at AEI.