Yellen says World Bank needs ‘cultural change’ to better mobilize private capital

By Andrea Shalal

BEN GUERIR, Morocco (Reuters) – U.S. Treasury Secretary Janet Yellen said on Tuesday the World Bank had made progress in reforming its operations to better address climate change and other global challenges, but still needed “cultural change” to mobilize private sector capital.

Yellen, speaking at the Mohammed VI Polytechnic University in Ben Guerir, Morocco, said the bank’s governors would this week endorse a new vision “to end poverty on a livable planet” and that its new president, Ajay Banga, was turning the envisioned evolution of the bank into action.

In addition to improved analytical and diagnostic tools, including country climate and development reports, the bank had begun working on principles for using concessional finance to target support for projects that address global challenges.

But more efforts were needed to equip World Bank staff to deliver the desired results, Yellen said.

“This will require internal process improvements that increase agility and speed up decision-making without sacrificing quality, as well as cultural change to accelerate private sector mobilization and responsible risk-taking.”

The reforms of the World Bank and other multilateral development banks (MDBs) are a key topic at this week’s annual meetings in Morocco of the International Monetary Fund and World Bank.

Banga has vowed to “fix the plumbing” and make the 16,000-strong organization more nimble. He has called the institution “dysfunctional”, despite a talented and dedicated staff.

Yellen said significant process had been made on boosting the financial capacity of the MDBs and reforms under consideration could add at least $200 billion in new lending capacity.

World Bank governors were expected to lay the groundwork for the issuance of hybrid capital and endorse a portfolio guarantee platform that gives shareholders a new way to contribute to the bank’s work, she said.

But government funding would never suffice, Yellen added, calling on the MDBs to establish concrete private capital mobilization targets and incentives for staff to meet them.

She said the World Bank’s International Finance Corp and MIGA divisions should expand their lending, guarantee and insurance instruments, and find new ways to smartly manage foreign exchange risk.

The bank should also release global emerging market data so private investors can better understand the actual risk and opportunity of investing in such markets.

As a next step, Yellen said Treasury had asked the MDBs to prioritize incorporating “a prudent share” of callable capital — the commitment from shareholders to step in in extreme circumstances — into their capital adequacy frameworks.

(Reporting by Andrea Shalal; Editing by Catherine Evans)