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‘The World Bank now is more sustainable and socially aware, but we are still a bank, of course’

The World Bank is no longer the neoliberal institution widely criticised in the 1980s, says top diplomat Koen Davidse. Nevertheless, trade unions are critical of the Ukrainian economic recovery plan in which the bank was involved. ‘A proper relationship with governments remains a difficult balancing act, even nowadays.’

It is eight in the morning in Washington DC when Koen Davidse joins a conference call from his post at the World Bank headquarters. The Dutch top diplomat immediately apologises for his sniffling; he has just returned from Ukraine and had caught a nasty cold during the trip.

‘I admire the resilience of the Ukrainian people,’ Davidse says. ‘The public administration is under inhuman pressure. But they have already resolved to make the economy sustainable after the war. They want to build back better.’

‘For example, a significant part of the electricity grid was destroyed due to Russian bombings, and most of the grid dates back to Soviet times. With our support, they want to rebuild it more efficiently and greener. I think it’s very sensible that they are already making plans for that.’

Two worlds apart

Koen Davidse (58) is not a typical banker. Before taking office as an Executive Director at the World Bank Group in November 2018, he was the deputy chief of the UN peacekeeping mission in the Malian capital, Bamako, for three years. ‘Africa always stays with you,’ he quips.

‘It is incredibly important that things improve quickly in the Sahel and in Mali. Many young people and women in that region are looking for a better future. The temperature over there is rising faster than in other places, and agricultural land is diminishing. That instability means there is almost no investment. I still devote much attention to this in my current position. Stability in West Africa is important, not only for the people there but also globally.’

Davidse studied political science and international relations at the Erasmus University in Rotterdam. In 1993, he started his diplomatic career at the Dutch Representation in India. Since then, on behalf of the Ministry of Foreign Affairs, he has been involved in international development policies, worked as a Dutch delegate in Sudan and held various positions at the United Nations. He had worked for the World Bank as an advisor before, in the late 1990s.

His vast international experience now serves him well.

‘Washington and Bamako are two completely different worlds,’ he laughs. ‘To start with, the distance between our and their reality is huge. In Mali, I lived the reality of the Sahel every day. Promoting a peace process in an impoverished country is very different from working in Washington.’

Kyiv doesn’t have to beg

As Executive Director of the World Bank, Davidse speaks for the Netherlands as well as for twelve other European countries, including Ukraine. Since the start of the Russian invasion in February 2022, it has been all hands on deck. ‘As a global development bank, we have quite a considerable amount of resources at our disposal. Part of that is now being freed up for Ukraine. But we obviously need to continue serving other countries as well.’

‘We will transfer 13 billion dollar to the Ukrainian government in Kyiv. But we do attach conditions to that’

Russia is formally still a member of the World Bank, says Davidse. But it no longer has active programmes and all staff have been withdrawn from Moscow. Since the start of the war, the bank has mobilised more than 13 billion dollars for Ukraine. ‘The US, in particular, has contributed a lot to that. The World Bank mainly acts as a platform for this. We merged the US money with donations from other countries.’

‘We will transfer the entire sum to the Ukrainian government in Kyiv. But we attach conditions to that. In Ukraine, for instance, we have identified expenditure items that are both urgently needed and easily traceable. Salaries of civil servants, for example, or social spending. This way, the government in Kyiv does not have to beg for money everywhere, and donors know exactly where their donations end up.’

American power

The World Bank headquarters is a colossus of glass and steel at a stone’s throw from the White House. Founded in 1944, the bank and its sister organisation, the International Monetary Fund (IMF), form the financial hub of the international economic order.

United Nations Bank

The World Bank is a specialised United Nations organisation focusing on poverty reduction and improving living standards, mainly in developing countries. It does this by providing financial and technical assistance.

The World Bank consists of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD focuses on less wealthy and creditworthy developing countries, and the IDA focuses on the most impoverished countries. Both institutions provide loans, interest-free credits and grants to developing countries primarily to improve education, infrastructure and communication.

Around 190 countries are affiliated with the World Bank. Delegates from these countries (usually finance ministers) meet at least once annually. The organisation has offices in more than 130 countries and employs about 10 thousand people.

Together with three other departments, the World Bank falls under the World Bank Group, and the Netherlands is a member of all five of these arms. In addition to the two arms of the World Bank, these are the International Finance Corporation (IFC), which promotes sustainable growth by investing in the private sector in developing countries, the Multilateral Investment Guarantee Agency (MIGA) through which companies insure an investment in a developing country against government-related risks, and the International Centre for Settlement of Investment Disputes (ICSID), an investment tribunal for conflicts between companies and national governments.

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The World Bank Group is formally owned by the participating governments, which are also shareholders. Traditionally, the US is the most powerful member, nominating a candidate for bank president every five years. The World Bank and the IMF were significant symbols of unparalleled US power in the decades immediately after World War II.

That is no longer the case these days, Davidse stresses. For example, in recent years, the US diplomatic corps has instead inhibited the growing focus on sustainability. ‘Ultimately, that focus is due to the efforts of European countries. African voices, in turn, stress that they did not cause the climate problem and are therefore entitled to cheap energy. In truth, they are right about that. Fortunately, renewable sources are becoming cheaper and cheaper. We see it as our task to help those countries go green.’

Environmental scandals and home evictions

The World Bank’s main role is to provide loans to countries to stimulate economic development. Such loans have lower interest rates and longer maturities than those from commercial banks, but they are subject to strict requirements.

In the neoliberal 1980s, in exchange for cheap credit, countries were required to devalue their currencies, open their markets to foreign companies and gear their economies to exports. Moreover, the World Bank demanded harsh cuts in social services, such as education and healthcare. In addition, the bank forced the privatisation of public services.

‘Until about 2000, there was a big difference of opinion between the UN and the World Bank on development and poverty reduction’

According to critics, the bank applied a shock doctrine to force countries into the global market. ‘A proper relationship with governments remains a difficult balancing act, even nowadays,’ Davidse says thoughtfully. ‘If a military coup takes place in the Sahel, do you abandon the people or don’t you? I wrestle with these kinds of questions every day.’

This focus on investment and marketisation resulted in the World Bank becoming involved in environmental scandals, infrastructure projects turned out to entail large-scale home evictions, and agricultural conglomerates financed by the bank took a dim view of human rights.

It also led to much criticism internally, Davidse acknowledges. ‘Until about 2000, there was a big difference of opinion between the UN and the World Bank on development and poverty reduction. The joint drafting of the Millennium Development Goals at the time changed that. Meanwhile, we have also become a major contributor on issues such as education and gender equality.’

Fossil investments

The World Bank has also increased its emphasis on sustainability. In 2013, the bank announced it was no longer investing in coal. Since 2016, tenders are not awarded solely based on price, and in 2018 the rules for mapping the social impact of projects and environmental requirements have become much stricter, Davidse summarises.

‘All these rules mean that the World Bank must now pay attention to factors other than the market. But that does not mean we no longer have to consider returns. We are still a bank, and countries do eventually have to repay their loans.’

‘We made a record amount of over 32 billion dollars in climate-relevant investments last financial year’

The sustainability policy seems to be bearing fruit. In 2016, the World Bank had more than 4 billion dollars of fossil investments on its balance sheet; four years later, it had 900 million. Davidse is satisfied: ‘The World Bank is like an oil tanker if you will. Our portfolio is huge, and the duration of loans is often long.’

‘That’s why you still come across all kinds of fossil projects started under the old terms. Despite this, we made a record amount of over 32 billion dollars in climate-relevant investments last financial year. Of course, I often experience frustration when change is slow. But we hold discussions with the entire world, and that takes time.’

Dutch guarantees

After the Russian invasion, the World Bank’s attention shifted to Ukraine at lightning speed. Direct budget support for the government in Kyiv and talks on reconstruction happened simultaneously. The weekly shifting of the frontline and the ongoing threat of new missile attacks make it difficult to work in the country, says Davidse. Still, it is essential, for example, to start removing mines so that Ukrainian farmers can sow crops in spring.

‘About 80 per cent of all economic activity is back under the authority of the Kyiv government. Yes, we must think about reconstruction. But right now, Ukraine is mainly suffering from an acute lack of liquidity. Taxes cannot be collected, and salaries cannot be paid. The aid we are providing now is aimed at keeping the country running.’

‘The high Dutch credit rating ensures that we, the World Bank, can issue loans and thus quickly mobilise a lot of money for Ukraine’

Part of the 13 billion mobilised for Ukraine consists of bilateral guarantees from governments. The Netherlands is on the books with two guarantees: 84 and 20 million dollars. Davidse explains: ‘That money does not have to leave the Netherlands at all. The cabinet promises to repay the loans if the Ukrainian government can’t. The high Dutch credit rating ensures that we, the World Bank, can issue loans and thus quickly mobilise a lot of money for Ukraine.’

Conference in The Hague

In October, one of Ukrainian President Volodymyr Zelensky’s aides presented the Ukrainian Recovery and Resilience Facility at a conference of the Dutch Ministry of Foreign Affairs via a video link. Koen Davidse also spoke at that conference.

The World Bank, together with the Ukrainian government, the prestigious Kyiv School of Economics and the European Commission, is working on a Rapid Damage Needs Assessment (RDNA) in which the financial substantiation for the Recovery and Resilience Facility(RRF) will be elaborated.

According to an earlier estimate, the ‘resumption of pre-war normality’ requires around 349 billion dollars. Two-thirds of that amount is earmarked for the restoration of transport infrastructure, land clearing, landmine removal and housing construction.

Under the current plans, a Supervisory Board comprising five representatives of the Ukrainian government and fifteen delegates from donor countries, the European Commission and almost all major development banks will be assigned to the Recovery and Resilience Facility.

‘Bombing and fighting are still ongoing in Ukraine, so the damage and economic impact may change from one week to the next. We will mainly play an advisory role and ensure that the figures are adjusted as things change.’

Controversial law

Not everyone is happy with Kyiv’s approach to economic recovery. Ukrainian trade unions warn that social partners had no say in the recovery plan and that there is too much emphasis on foreign investors. The unions also say too little consideration is being given to the income security of Ukrainian employees.

In a letter to the European Commission, the trade union federation ETUC (European Trade Union Confederation) emphatically warns of the close links between the Zelensky government and the wealthy oligarchs who have dominated Ukraine’s economy for decades.

In particular, a controversial law on ‘simplifying labour relations’ proposed a few months before the Russian invasion raises questions.

The Ukrainian parliament reportedly pushed the proposal through in the course of the war. That law gives companies with fewer than 250 employees the right to suspend collective bargaining agreements and greatly increase the number of zero-hours contracts. ETUC fears that companies in Ukraine will widely sideline labour rights by splitting their operations.

What is Davidse’s view on these risks? ‘To be honest, I don’t have an adequate answer to this. Last week, I was in Kyiv on the day the largest Russian missile attack occurred. I understand that not all public consultations can run smoothly when at war. My assessment is that the Ukrainian government is doing its utmost best under difficult circumstances.’

Financial innovation

According to Davidse, the business community will play an important role in Ukraine’s reconstruction process. The World Bank has a private arm to serve businesses, namely the International Finance Corporation (IFC), founded in 1956. This ensures that the bank’s money reaches companies that want to invest via financial intermediaries.

In Ukraine, this route runs via Horizon Capital, among others: an American-Ukrainian investment firm that targets export companies looking to make high profits by taking advantage of low wages in Eastern Europe and Central Asia. In September 2022, the firm presented a new fund for Ukraine at its London IFC office. To this end, it received 30 million dollars from IFC. ‘That fund focuses primarily on financial technology,’ Davidse says.

‘The Ukrainian economy is functioning minimally and faces a 35 per cent shrinkage this year. The financial sector is almost completely paralysed’

‘Because of the war, the financial sector is almost completely paralysed. The Ukrainian economy is functioning minimally and faces a 35 per cent shrinkage this year. This is a huge shock. In 2021, 2 per cent of Ukraine’s population lived below the poverty line. This year, that figure will exceed 25 per cent. So we should support not only the government but also the private sector. Then, in time, Ukrainians will again be able to collect their own taxes and export grain.’

Shady networks

Traditionally, the powerful Ukrainian oligarch class holds sway in the economically dominant agricultural sector. Before the war, more than 70 per cent of the agricultural market was in the hands of ten mega-corporations, according to the National Grain Association. Those businesses have made their owners very wealthy through shady networks comprising holdings, leases, subsidiaries and tax structures – often with financial support from the World Bank.

‘Agriculture in Ukraine is not an easy sector,’ Davidse responds. ‘If we ignore such an important branch of the economy, we are accused of beating around the bush. This is precisely why we have strict loan requirements these days. To increase transparency, enforce environmental measures and give small farmers a fighting chance.’

The World Bank is categorically no longer the neoliberal hegemon it was in the 1980s, Davidse eagerly notes. ‘The reproach used to be that the World Bank imposed structural adjustments on countries,’ the top diplomat concludes.

‘That is why our programmes nowadays materialise in consultation with governments and civil society organisations as much as possible. How far we can go remains a tricky question. Because at the end of the day, we remain a development bank, and we are not the world’s policing authority.’

Translation: Delia Burggraaf