[Reuters Breakingviews] How the World Bank can defend itself from Trump

LONDON, March 12 (Reuters Breakingviews) - Up until two years ago, Ajay Banga had spent most of his career in the private sector – as a banker at Citigroup C.N and latterly as the CEO of Mastercard MA.N. Now the World Bank president finds himself having to defend one of the linchpins of the liberal international order against President Donald Trump, who last month ordered a government review that could see the United States quit as the 81-year-old institution’s top shareholder. Yet Banga has arguments and hard facts on his side, which could help him appeal to U.S. self-interest.

On the face of it, the World Bank’s boss of 21 months faces an uphill struggle. In recent weeks the White House and Elon Musk’s Department of Government Efficiency have engineered drastic cuts to U.S. aid programmes and announced plans to withdraw from the Paris Climate Agreement and the World Health Organization. February’s executive order ordered a 180-day review of all intergovernmental organisations to which the United States belongs and provides funding.

That marks a break from the past. Successive U.S. administrations have seen the logic of backing the World Bank, which undertook $117 billion of financing in 2024 and uses loans to help poorer countries recover from wars, disasters and, of late, manage climate change. Trump’s “America First” agenda jars with the notion that the rich world has a responsibility to help the rest, particularly with global warming – awkward, given the World Bank’s goal for 45% of its lending this year to be climate-related.

U.S. hostility is particularly relevant for the International Development Association, a key part of the World Bank. The IDA is an unusual sort of bank. It disbursed $28 billion in 2024 to the world’s poorest countries like Ethiopia and Bangladesh, typically in the form of grants and loans with lowball interest rates. The generous terms mean rich countries must top it up every three years.

Inconveniently for Banga, one of these so-called replenishments is now due. Last December, then-U.S. President Joe Biden signed off on a $4 billion pledge from the United States as part of the IDA’s current $24 billion top-up. The next step is for the Republican-controlled Congress to approve it. Absent that support, the IDA would struggle to stick to its current disbursement plans. In a worst-case scenario for the World Bank, the U.S. IDA funding would falter and Secretary of State Marco Rubio, who is undertaking Trump’s review of multilateral institutions, would later this year recommend a full exit.

The good news for Banga is that he has some possible counterarguments to deploy. First, the IDA’s hybrid, leveraged financing model represents a relatively efficient structure, from the perspective of rich funders. For every $1 deployed by the United States, fellow shareholders put in $4. The IDA then borrows from bond markets to lever that $5 into a total financing capacity of roughly $20. The IDA hopes to turn its current planned $24 billion replenishment, for example, into around $100 billion of grants and low-interest loans. In other words, backers get quite a lot of bang for their buck.

Then there’s the International Bank for Reconstruction and Development (IBRD), the World Bank’s other key institution. The IBRD levers its capital up to four times through bond issuances to provide loans. It also covers its own costs by borrowing with a triple-A credit rating. In 2024, the bank lent $33.5 billion to middle-income countries. Once loans get paid back, the organisation can recycle its capital into new projects. Over their lifetime, the IBRD and two related World Bank organisations have enabled $1.5 trillion of lending off permanent capital of only $23 billion – just $3.7 billion of which came from the United States.

Finally, Banga can address one of Trump’s signature topics: immigration. The World Bank reckons that an unprecedented 1.2 billion young people will become working-age adults over the next decade in the so-called Global South, a term that describes lower-income countries, but with only 420 million more jobs created over the same period. Given Trump has made tackling illegal immigration to the United States his single biggest goal, it makes no sense to cut off an organisation firmly focused on funding job creation in these countries. Banga's policies would arguably prevent migrants leaving home in the first place.

And financially speaking, there’s little for Trump and Rubio to gain from trying to reclaim the $3.7 billion of U.S. paid-in capital. Article VI of the Word Bank’s charter says that departing members only get fully repaid when the last loan they’re enabling rolls off, which might take decades. Some have argued the United States could get back tens of billions of dollars in so-called “callable capital”, or shareholder equity that donor countries only need to stump up in the event of unprecedented losses. That’s nonsense: the money hasn’t been handed over, so can’t be handed back.

Odder still, Washington’s 16% stake in the IBRD means it is the only state globally that can block World Bank decisions. If it were to leave, that would open the door for China, which has long demanded an increase to its 6% shareholding to match its economic clout. In theory, a U.S. exit could see China acquire Washington's holding and eventually lead to the bank’s main offices relocating from the U.S. capital to Beijing, since Article V of the organisation's charter states that its headquarters must be in the territory of its largest shareholder. Given Trump’s antipathy towards Beijing, that would make little sense.

A World Bank shorn of the U.S. would still exist. True, it would probably lose its triple-A credit rating and see financing costs rise. But borrowing costs would probably be no higher than those of other multilateral lenders, like the European Bank for Reconstruction and Development, according to a person familiar with the World Bank’s thinking on the matter. Similarly, if Washington decides to pay less into the IDA or obstruct World Bank policy, most of the body’s activities could still go on. Say the U.S. withheld all of Biden’s $4 billion IDA pledge. The overall loan potential from the programme would fall from nearly $100 billion to around $80 billion, which hardly counts as a disaster for Banga.

In other words, quitting the World Bank would hand the initiative to U.S. enemies while offering previous little upside, and potentially boost immigration over time. That’s a compelling message for Banga to take to the White House.

CONTEXT NEWS

The White House issued an executive order on February 4 ordering a 180-day review of U.S. support for all international intergovernmental bodies, to “determine which organizations, conventions, and treaties are contrary to the interests of the United States and whether such organizations, conventions, or treaties can be reformed”.

Since the start of the year, the United States has announced plans to withdraw from the Just Energy Transition Partnership, World Health Organization and Paris Climate Agreement, while also slashing funding for the U.S. Agency for International Development.

The World Bank, established in 1944, is a multilateral financial institution that provides loans and grants to reduce poverty in low- and middle-income countries. Its main lending arms are the International Development Association, which supports the world’s poorest countries, and the International Bank for Reconstruction and Development, which assists middle-income states and relatively creditworthy low-income ones.

The U.S. is a large shareholder in many multilateral development banks

Persistent jobs gap in the global south

Ethiopia and Bangladesh received the lion's share of IDA loans last year