Order Code RS22029
January 19, 2005
CRS Report for Congress
Received through the CRS Web
The World Bank: Changing Leadership and
Issues for the United States and Congress
Martin A. Weiss
Analyst in International Finance and Trade
Foreign Affairs, Defense, and Trade
Summary
The decision of World Bank President James Wolfensohn to resign in May 2005
has triggered the search for a successor. Although any member of the World Bank
Executive Board can propose a candidate for election by a majority vote of members,
tradition dictates that the United States selects the President at the World Bank and
Europe chooses the International Fund Managing Director. Although there is repeated
criticism of this arrangement, and actual proposals to change the system have been
considered, it is unlikely that this tradition will be abandoned during the current
selection process. The focus of the next World Bank President likely will be on many
development issues including global humanitarian and reconstruction assistance and
debt relief for the poorest countries, among others. Congress has a significant role in
shaping U.S. policy at the World Bank through funding arrangements and oversight
responsibility. This report will be updated as events warrant.
Background
On January 2, 2005, World Bank President James Wolfensohn announced his
intention to leave when his term ends this year, even though he is eligible for a third five-
year term.1 On January 3, Mr. Wolfensohn submitted notice to the Bank’s board of
shareholder governments that he will step down on May 31, 2005.2 Mr. Wolfensohn’s
decision to resign formally marks the beginning of the search for the tenth president of
the World Bank. Individuals reported by the press to be under consideration by the Bush
Administration are the following: former President Bill Clinton; Under-Secretary of the
Treasury for International Affairs, John Taylor; Randall Tobias, the U.S.’s global AIDS
coordinator; Christine Todd Whitman, the former director of the Environmental
1 Paul Blustein, “World Bank Chief to Step Down in ‘05,” Washington Post, January 3, 2005.
2 Paul Blustein, “Wolfensohn Confirms Plan to Leave World Bank,” Washington Post, January
4, 2005.
Congressional Research Service ˜ The Library of Congress

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Protection Agency; and Carla Hills, former President George H.W. Bush’s Trade
Representative.3
The World Bank is the largest of several multilateral development banks (MDBs)
and is one of the world’s largest sources of development assistance. It includes 184
member countries, who are jointly responsible for how the institution is financed and how
its money is spent. The G-7/8 countries are the largest shareholders of the World Bank
and play the largest role in setting its agenda.4 The United States is the largest contributor
to the World Bank ($25.8 billion committed, or 23.6% of total contributions committed)
and has the largest voting share (14.5%).5
James Wolfensohn, the ninth World Bank President, arrived in 1995 after a
successful career in international banking. He spent much of his career at Salomon
Brothers in New York and Schroeder’s in London before opening his own investment
firm. Under his leadership, the Bank tackled many major issues including opening up the
Bank to engagement with non-governmental organizations (NGOs) and other critics, and
he pushed through various technology and management changes. He also introduced
several anti-corruption initiatives, and steered a major global debt relief initiative for
impoverished countries, the Highly Indebted Poor Countries Initiative (HIPC), launched
in 1996.6
Issues of international development appear to be a priority for many World Bank
members. The United Kingdom, currently presiding over the G-8 presidency, has urged
more aid and greater debt relief and has called for a G-8 Summit in 2005 with
international development as its focus.7 U.K. Prime Minister Tony Blair has established
a Commission on Africa that will issue recommendations in spring 2005. In September
2005, there will be a United Nations summit to assess progress toward its 2015
Millennium Development Goals. There will also be a WTO ministerial meeting in Hong
Kong in December 2005 that will gauge progress on the so-called “Doha Development
Round” of international trade talks.8
The December 26, 2004 earthquake in the Indian Ocean, and the ensuing tsunami
brought additional attention to international assistance and development. The Bush
Administration has offered $350 million in U.S. government funds to help reconstruction
3 See [http://www.worldbankpresident.org/].
4 The G-7 is France, the United States, Britain, Germany, Japan, Italy, and Canada. In 2006,
Russia will host the G-8 summit, thus completing its process of becoming a full member.
5 Treasury International Programs, FY2005 Budget Request Justification for Appropriations, p.
45.
6 See Foreign Operations Appropriations, FY2005 on the CRS website, page on “Debt Reduction
— HIPC Initiative,” [http://www.congress.gov/brbk/html/apfor11.html].
7 Blair, Tony, “A Year of Huge Challenges,” The Economist, December 29, 2004.
8 CRS Report RL32645, The Doha Development Agenda: The WTO Framework Agreement.

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efforts, of which $78 million was spent as of January 11, 2005.9 The Paris Club group
of major creditor nations has agreed to temporarily suspend debt payments from countries
affected by the tsunami.
The Process for Selecting a New World Bank President
Leadership selection at the two major international financial institutions (IFIs), the
IMF and the World Bank, is guided by tradition. For 60 years, the World Bank has had
American President and the IMF has had a European Managing Director. This
convention was the outcome of a “gentleman’s agreement” struck at the 1944 Bretton
Woods Conference establishing the two institutions.
During the Bretton Woods negotiations, the United States believed that the World
Bank should be headed by an American since the United States was the only capital
surplus nation, and World Bank lending would be dependent on American financial
markets. According to then U.S. Secretary of the Treasury Fred Vinson, “the Bank would
have to be headed by a U.S. citizen in order to win the confidence of the banking
community.”10 Moreover, he noted, “it would be impracticable to appoint U.S. citizens
to head both the Bank and the Fund.”11
It is unlikely that the United States will break the tradition in its World Bank
President selection. “The US administration would be sending a very strong statement
if it nominated someone from a developing nation,” according to William Cline, a senior
fellow at the Center for Global Development. “But I would be very surprised if it did.”12
Rob Nichols, the Assistant Treasury Secretary for Public Affairs, has stated that the
administration intends to conduct an “open, candid and transparent” selection process.13
Nonetheless, many still criticize the process. The Financial Times of London
editorialized that the “World Bank president is an executive post, yet the task of managing
such a diverse organization, both knowledge bank and lender, with occasional shifts of
priorities by shareholder governments, is difficult in the extreme. This position above all
should be open to successful reformers from the developing world.”14
Guidelines. The formal guidelines for choosing the World Bank president are
found in its Articles of Agreement. The guidelines state that the Executive Board select
a President — by a 50% majority — who shall not be a Governor or an Executive
9 Michael A. Fletcher, “Bush Promises Long-Term Aid,” The Washington Post, January 11, 2004.
10 Kahler, Miles, Leadership Selection in the Major Multilaterals, Institute for International
Economics, 2001, p. 43.
11 Ibid, p. 43.
12 Swann, Christopher, “Wolfensohn to leave World Bank post in June,” The Financial Times,
January 4, 2005.
13 Blustein, January 4, 2005.
14 “The Wrong Kind of Executive Search,” The Financial Times, January 11, 2005.

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Director (ED) of a member country.15 The U.S. candidate for World Bank President does
not need to be confirmed by the Senate.

The selection process is also constrained by informal guidelines, most notably that
of consensus among the Executive Board on a candidate. If there are numerous potential
candidates, an informal straw vote could be taken before the official vote. The U.S.
candidate has never formally been challenged by other countries’ EDs. In 1968, Bank
EDs requested the United States to put forward several candidates for them to choose
from. This request was rebuffed and President Johnson submitted only one name, Robert
McNamara, former Secretary of Defense (1968 - 1981).16 This practice has continued.
In 1995, a degree of transparency was added when a search committee was set up, chaired
by Treasury of the Secretary Robert Rubin. After somewhat contentious negotiations,
James Wolfensohn was selected as the U.S. nominee.17 Between Mr. McNamara and
Mr. Wolfensohn, the bank was presided over by Alden Clausen (1981 - 1984 CEO,
BankAmerica), Barber Conable (1984 - 1991, Member of House of Representatives), and
Lewis Preston (1991 - 1995, Chairman and CEO, J.P. Morgan and Co.).
The Debate Over the U.S.-EU Convention. The U.S.-EU arrangement is
considered by many of its critics as a relic of the past. Whereas the United States clearly
dominated the post-World War II economy (and Europe was the region that the World
Bank was designed to reconstruct), the current international economy is less easily
categorized. Moreover, the original rationale for the United States claiming World Bank
leadership is obsolete. International capital markets, not United States financial markets
are the major source of World Bank capital. In 2004, 34% of the World Bank’s
borrowing was in dollars and a substantial share of these were drawn from overseas dollar
loan markets.18 This was down from 51% in 2000. The World Bank is no longer solely
reliant on domestic U.S. capital markets to finance its lending operations.19
Critics also argue that a nationality principle limits the pool of potential candidates,
excluding developing country members who may be better versed in their countries’
development needs. Arguably, for any IFI president to be successful, they need the
respect and confidence of the IFI staff and member countries. In addition to the skills
needed to manage a major international organization and speak on behalf of various
developing and developed countries, a World Bank president requires expertise in both
development and private finance. Finally, critics argue that since the World Bank and the
IMF are at the forefront of promoting governance reform throughout the world, they
15 The Board of Governors (BOG) is the highest authority in the IMF and all countries are
represented, often at the finance ministry of treasury level. The Executive Board handles day-to-
day authority over operational policy, lending, and other matters. The U.S. Executive Director
is nominated by the President, confirmed by the Senate, and directed by the Department of the
Treasury’s Office of the Undersecretary for International Affairs.
16 Kahler, p. 44.
17 See Kahler, p. 46-47.
18 The World Bank Annual Report 2004 Volume 2, Financial Statements, p. 20,
[http://www.worldbank.org/annualreport/2004/pdf/Volume_2.pdf].
19 Kahler, p. 48.

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should follow the advice it gives its member countries and institute a more transparent
and wide-ranging search for potential IFI directors.
Nonetheless, the United States (and the Europeans) are the largest contributors to
the IMF and the World Bank. By creating a situation where the largest shareholders are
not necessarily the largest stakeholders could fundamentally change the organizations.
Most importantly, the willingness of the United States to support these institutions could
be diminished if its contributions were not commensurate with influence. Moreover, the
leadership of the World Bank is the only major multilateral organization that is open to
direct U.S. leadership. If the United States were to give up its claim on the World Bank
leadership it has made clear that it would expect to be considered for leadership positions
at the other multilateral institutions, including the regional development banks.20 It is thus
expected that following the appointment of Rodrigo Rado (a Spaniard) as Managing
Director of the IMF in 2004, Europeans will likely not challenge the U.S. claim on the
World Bank Presidency. However, there may likely be discussions among, and
recommendations from, non-governmental organizations and various think-tanks
encouraging the United States and the World Bank Executive Board to consider qualified
non-U.S. citizen candidates.
Proposals for Reform. In July 2000, two internal working groups (the World
Bank Working Group to Review the Process for Selection of the President and the
International Monetary Fund Working Group to Review the Process for Selection of the
Managing Director) were created to discuss the selection procedure. A joint draft report
of the Working Group was endorsed by the Executive Directors on April 26, 2001, but
never formally implemented. The report declared, among other things, that transparency
and accountability is critical to the selection process.
During the 2004 nomination of a new IMF Managing Director, a wide range of
experts advocated revision of the IFI selection process. Moises Naim, editor of Foreign
Policy magazine, commented that “the next chief executive of the IMF — and the World
Bank — must be selected through a process that gives them and their institutions the
legitimacy that only a competitive and transparent process can bestow.” Nancy Birdsall,
of the Center for Global Development, specifically pointed out the need to involve the
major emerging markets of South American and Asia, as well as the world’s poorest
countries. According to Dr. Birdsall, “the unwillingness of the U.S. and the G-7 to share
power and responsibility in the global financial institutions is already undermining the
legitimacy and effectiveness of these institutions.”
Issues Facing the World Bank
There are several differences between the United States and other Bank member
countries over development issues which may complicate future assistance efforts during
2005. Gordon Brown, the chancellor of the U.K. Treasury has called for rich countries
to increase aid through various proposals such as an international finance facility (IFF),
which would issue special bonds securitized on future government aid budgets. The U.S.
government, Germany and Canada have said that their public finance rules would not
allow them to participate in an IFF facility since they cannot account for borrowing up
20 Kahler, p. 48.

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front. Dr. Taylor, by contrast has placed emphasis on increasing aid efficiency and not
the volume of aid. This has complicated negotiations for debt relief. While the United
Kingdom would like to write off all IMF and World Bank debt for all very poor countries
(in addition to HIPC countries) with donor countries increasing contributions to the World
Bank to fund the World Bank’s debt reduction, the United States believes the World Bank
can instead fund its own debt relief by refraining from providing loans to such countries
and instead, moving to grant-based assistance with tighter performance requirements.
The World Bank and Congress
The 109th Congress could face action on issues involving the World Bank on various
fronts. Congress must approve all U.S. appropriations to the institutions and has
oversight authority over U.S. international economic policy. In the 108th Congress,
hearings were held on various issues including anti-corruption policies at the MDBs,
World Bank lending to Iran, regional international financial crises, and general oversight
hearings concerning U.S. international economic policy and priorities at the institutions.
Congress appropriated $1.38 billion to the MDBs in FY2004 and $1.219 billion in
FY2005. This amount fell in between the House and Senate-passed levels, but $274
million, or 18.3% below the President’s FY2005 request of $1.493 billion. Among the
Institutions, the largest cut falls on the International Development Association (IDA). In
FY2005, the President requested $1.061 billion to cover the third of three scheduled
annual contributions under the thirteenth three-year replenishment of IDA, IDA-13 ($850
million base payment plus $200 million of a U.S.-committed $300 million incentive
contribution for increasing IDA performance standards).21 The enacted IDA appropriation
($843.2 million) provides slightly less than the regular IDA contribution amount ($850
million), and does not fund the Administration’s $200 million incentive payment.
Debates concerning grants and concessional loans to IDA countries and the
appropriate financing for debt forgiveness are likely to be a part of congressional
consideration for funding the 2005-2008 IDA-14 replenishment. The FY2006 budget
request will likely include the first of three annual U.S. contributions for the IDA-14.
Authorizing legislation will likely be submitted.
21 In 2002, the Bush Administration announced it would contribute $300 million over three years
($100 million in FY2004, $200 million in FY2005) if the World Bank agreed to adopt specific
steps to improve accountability and better measure the results of Bank-funded operations. The
Administration certified in April 2003 and in June 2004 that IDA had achieved the two sets of
reform targets and requested an additional $100 million and $200 million in fiscal 2004 and 2005
appropriations, respectively, as incentive contributions to IDA. (Congress, however, did not
include this money in either the fiscal 2004 or 2005 appropriation.) The April 2003
announcement came following a meeting of IDA donors at which it was agreed that IDA had met
the targets specified earlier for enhancing its performance standards.

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