Obama nominates Jim Yong Kim as U.S. choice for World Bank president

The only other candidate in the running at present is the Nigerian Finance Minister Ngozi Okonjo-Iweala. In a surprise move another top candidate Jeffrey Sachs withdrew and threw his full support behind Kim.

By tradition since 1944 an American has always been head of the World Bank and a European head of the IMF. This year there is a more open nomination and selection process. However, it looks as if the tradition will probably prevail. Sachs had the support of many developing nations. Perhaps many of them will now back Kim.

Jim Yong Kim was never a top candidate of those mentioned as being considered by Obama. Lawrence Summers was thought to be the likely U.S. candidate. However many were critical of the choice including some Europeans. Europe is expected to support the U.S. choice.

According to this BBC article Kim is a leading figure in global health. He worked in the WHO as director of the HIV/Aids dept. He also founded a health charity. Kim moved to the U.S. when he was five and grew up in Muscatine Iowa. He has an MD and PhD in anthropology from Harvard. He became president of Dartmouth College in 2009.

The choice is welcomed by many. It is certainly a victory for those who did not want to see Summers become bank president. Others see it as more than that. See this article. Robert Naiman wrote this to me in an email:""If you care about access to basic health services in poorcountries, it's a big victory. If you care about breaking down barriers to access to essential medicines in poor countries, it's a big victory." We will see.

I just wonder what Sachs' aim is in all this. He touted himself as eminently qualifiied for the job and had others write glowing reviews about his qualifications but then at the last moment he withdraws and supports Kim! Were there behind the scenes negotiation? Meanwhile there is one developing world candidate, the finance minister of Nigeria still in the running but she may turn out to be another part of what seems to be a concerted effort to show that the tradition has really changed while in fact she has no chance of winning. She is supported by three African countries. For more see this article.

Jeffrey Sachs: Obama in Chains

As Sachs points out there are many features of the present situation in the US that make it difficult if not impossible for Obama to pass policies that are necessary to help the US recover from its present malaise. Many of these roadblocks are of Obama's own making such as his continued promises not to raise taxes. He may consider this as political necessity but then these promises will be of no avail if the economic situation gets worse and the social safety net and infracture is in tatters.


This is from project-syndicate.

Obama in Chains
Jeffrey D. Sachs



NEW YORK – It is hard for international observers of the United States to grasp the political paralysis that grips the country, and that seriously threatens America’s ability to solve its domestic problems and contribute to international problem solving. America’s governance crisis is the worst in modern history. Moreover, it is likely to worsen in the years ahead.

The difficulties that President Barack Obama is having in passing his basic program, whether in health care, climate change, or financial reform, are hard to understand at first glance. After all, he is personally popular, and his Democratic Party holds commanding majorities in both houses of Congress. Yet his agenda is stalled and the country’s ideological divisions grow deeper.

Among Democrats, Obama’s approval rating in early November was 84%, compared with just 18% among Republicans. Fifty-eight percent of Democrats thought the country was headed in the right direction, compared with 9% of Republicans. Only 18 % of Democrats supported sending 40,000 more troops to Afghanistan, while 57% of Republicans supported a troop buildup. In fact, a significant majority of Democrats, 60%, favored a reduction of troops in Afghanistan, compared with just 26% of Republicans. On all of these questions, a middle ground of independents (neither Democrats nor Republicans) was more evenly divided.

Part of the cause for these huge divergences in views is that America is an increasingly polarized society. Political divisions have widened between the rich and poor, among ethnic groups (non-Hispanic whites versus African Americans and Hispanics), across religious affiliations, between native-born and immigrants, and along other social fault lines. American politics has become venomous as the belief has grown, especially on the vocal far right, that government policy is a “zero-sum” struggle between different social groups and politics.

Moreover, the political process itself is broken. The Senate now operates on an informal rule that opponents will try to kill a legislative proposal through a “filibuster” – a procedural attempt to prevent the proposal from coming to a vote. To overcome a filibuster, the proposal’s supporters must muster 60 of 100 votes, rather than a simple majority. This has proven impossible on controversial policies – such as binding reductions on carbon emissions – even when a simple majority supports the legislation.

An equally deep crisis stems from the role of big money in politics. Backroom lobbying by powerful corporations now dominates policymaking negotiations, from which the public is excluded. The biggest players, including Wall Street, the automobile companies, the health-care industry, the armaments industry, and the real-estate sector, have done great damage to the US and world economy over the past decade. Many observers regard the lobbying process as a kind of legalized corruption, in which huge amounts of money change hands, often in the form of campaign financing, in return for specific policies and votes.

Finally, policy paralysis around the US federal budget may be playing the biggest role of all in America’s incipient governance crisis. The US public is rabidly opposed to paying higher taxes, yet the trend level of taxation (at around 18% of national income) is not sufficient to pay for the core functions of government. As a result, the US government now fails to provide adequately for basic public services such as modern infrastructure (fast rail, improved waste treatment, broadband), renewable energy to fight climate change, decent schools, and health-care financing for those who cannot afford it.

Powerful resistance to higher taxes, coupled with a growing list of urgent unmet needs, has led to chronic under-performance by the US government and an increasingly dangerous level of budget deficits and government debt. This year, the budget deficit stands at a peacetime record of around 10% of GNP, much higher than in other high-income countries.

Obama so far seems unable to break this fiscal logjam. To win the 2008 election, he promised that he would not raise taxes on any household with income of less than $250,000 per year. That no-tax pledge, and the public attitudes that led Obama to make it, block reasonable policies.

There is little “waste” to cut from domestic spending, and many areas where increases in public spending are needed. Higher taxes on the rich, while justified, don’t come close to solving the deficit crisis. America, in fact, needs a value-added tax, which is widely used in Europe, but Obama himself staunchly ruled out that kind of tax increase during his election campaign.

These paralyzing factors could intensify in the years ahead. The budget deficits could continue to prevent any meaningful action in areas of critical need. The divisions over the wars in Iraq and Afghanistan could continue to block a decisive change in policy, such as a withdrawal of forces. The desire of Republicans to defeat the Democrats could lead them to use every maneuver to block votes and slow legislative reforms.

A breakthrough will require a major change in direction. The US must leave Iraq and Afghanistan, thereby saving $150 billion per year for other purposes and reducing the tensions caused by military occupation. The US will have to raise taxes in order to pay for new spending initiatives, especially in the areas of sustainable energy, climate change, education, and relief for the poor.

To avoid further polarization and paralysis of American politics, Obama must do more to ensure that Americans understand better the urgency of the changes that he promised. Only such changes – including lobbying reforms – can restore effective governance.

Copyright: Project Syndicate, 2009.
www.project-syndicate.org

Sachs on the Geithner-Summers banking plan.

This is another critique of the Geithner bank bailout plan that shows again how taxpayers are buying into a raw deal while the bankers will be making a great deal of money. No wonder financial stocks have been rising the last few days!


http://www.huffingtonpost.com/jeffrey-sachs/the-geithner-summers-plan_b_183499.htmlTwo weeks ago, I posted an article showing how the Geithner-Summers bankingplan could potentially and unnecessarily transfer hundreds of billions ofdollars of wealth from taxpayers to banks. The same basic arithmetic waslater described by Joseph Stiglitz in the *New YorkTimes*<http://www.nytimes.com/2009/04/01/opinion/01stiglitz.html?scp=2&sq=stiglitz&st=cse>(April1) and by PeytonYoung in the *FinancialTimes*<http://www.ft.com/cms/s/3e985de0-1ee7-11de-a748-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F3e985de0-1ee7-11de-a748-00144feabdc0.html&_i_referer=http%3A%2F%2Fsearch.ft.com%2Fsearch%3FqueryText%3Dpeyton%2Byoung%26x%3D0%26y%3D0%26aje%3Dtrue%26dse%3D%26dsz%3D>(April1). In fact, the situation is even potentially more disastrous thanwe wrote. Insiders can easily game the system created by Geithner andSummers to cost up to a trillion dollars or more to the taxpayers.Here's how. Consider a toxic asset held by Citibank with a face value of $1million, but with zero probability of any payout and therefore with a zeromarket value. An outside bidder would not pay anything for such an asset.All of the previous articles consider the case of true outside bidders.Suppose, however, that Citibank itself sets up a Citibank Public-PrivateInvestment Fund (CPPIF) under the Geithner-Summers plan. The CPPIF will bidthe full face value of $1 million for the worthless asset, because it canborrow $850K from the FDIC, and get $75K from the Treasury, to make thepurchase! Citibank will only have to put in $75K of the total.Citibank thereby receives $1 million for the worthless asset, while theCPPIF ends up with an utterly worthless asset against $850K in debt to theFDIC. The CPPIF therefore quietly declares bankruptcy, while Citibank walksaway with a cool $1 million. Citibank's net profit on the transaction is$925K (remember that the bank invested $75K in the CPPIF) and the taxpayerslose $925K. Since the total of toxic assets in the banking system exceeds $1trillion, and perhaps reaches $2-3 trillion, the amount of potential rip-offin the Geithner-Summers plan is unconscionably large.The earlier criticisms of the Geithner-Summers plan showed that even outsidebidders generally have the incentive to bid far too much for the toxicassets, since they too get a free ride from the government loans. But oncewe acknowledge the insider-bidding route, the potential to game the plan atthe cost of the taxpayers becomes extraordinary. And the gaming of thesystem doesn't have to be as crude as Citibank setting up its own CPPIF.There are lots of ways that it can do this indirectly, for example, buyingassets of other banks which in turn buy Citi's assets. Or other stakeholdersin Citi, such as groups of bondholders and shareholders, could do the same.Several news stories suggest some grounding for these fears. Both *BusinessWeek* and the *Financial Times* report that the banks themselves might beinvited to bid for the toxic assets, which would seem to set up just thescam outline above. What is incredible is that lack of the most minimaltransparency so far about the rules, risks, and procedures of thistrillion-dollar plan. Also incredible is the apparent lack of any oversightby Congress, reinforcing the sense that the fix is in or that at best we areall sitting ducks.The sad part of all this is that there are now several much better ideascirculating among experts, but none of these seems to get the time of dayfrom the Treasury. The best ideas are forms of corporate reorganization, inwhich a bank weighed down with toxic assets is divided into two banks -- a"good bank" and a "bad bank" <http://voxeu.org/index.php?q=node/3320> --with the bad bank left holding the toxic assets and the long-term debts,while owning the equity of the good bank. If the bad assets pay off betterthan is now feared, the bondholders get repaid and the current bank shareskeep their value. If the bad assets in fact default heavily as is nowexpected, the bondholders and shareholders lose their investments. The keypoint of the good bank -- bad bank plans is an orderly process to restorehealthy banking functions (in the good bank) while divvying up the losses ina fair way among the banks' existing claimants. The taxpayer is not neededfor that, except to cover the insured part of the banks' existingliabilities, specifically the banks' deposits and perhaps other short-termliabilities that are key to financial market liquidity.Cynics believe that the Geithner-Summers Plan is exactly what it seems: anaked grab of taxpayer money for Wall Street interests. Geithner and Summersargue that it's the least bad approach to a messy situation, in which weneed to restore banking functions but don't have any perfect ways to dothat. If they are serious about their justification, let them come forwardto confront their critics and to explain to the American people why theother proposals are not being pursued.Let them explain the hidden and not-so-hidden risks to the American taxpayerof the plan that they have put forward. Let them explain why they are sointent on saving the banks' bondholders, even the long-term unsecuredcreditors who clearly knew they were taking market risks in buying Citibankbonds. Let them work with their critics to fashion a less risky and lesscostly plan. So far Geithner and Summers tell us that their plan is the onlyoption, but without a word of further explanation as to why.___________________________________

THe Palestinian Follies

This is another interesting analysis of the Palestine situation perhaps a rather surprising analysis for someone usually noted for his rather right wing views and his involvement in the plundering of the assets of the former Soviet empire by enterprising entrepreneurs under the guidance of Americans such as Sachs himself. He was part of what might be called the Harvard University Deconstruction Crew. He also is famous for using shock therapy policies to solve crises of the collapse of socialist economies in countries such as Poland. He later worked on global poverty issues and was employed by the UN supposedly pro bono but actually paid 75 k a year to solve his own poverty problems until someone found out!


The Palestine follies

By Jeffrey D. Sachs

American foreign policy in the Middle East experienced yet another major setback this month, when Hamas, whose Palestinian government the United States had tried to isolate, routed the rival Fateh movement in Gaza. In response, Israel sealed Gaza’s borders, making life even more unbearable in a place wracked by violence, poverty and despair.

It is important that we recognise the source of America’s failure, because it keeps recurring, making peace between Israel and Palestine more difficult. The roots of failure lie in the US and Israeli governments’ belief that military force and financial repression can lead to peace on their terms, rather than accepting a compromise on terms that the Middle East, the rest of the world and, crucially, most Israelis and Palestinians, accepted long ago.

For 40 years, since the Six-Day War of 1967, there has been one realistic possibility for peace: Israel’s return to its pre-1967 borders, combined with viable economic conditions for a Palestinian state, including access to trade routes, water supplies and other essential needs. With small and mutually acceptable adjustments to those borders, these terms would enable peaceful co-existence of two states side by side. Perhaps three-fourths of both Israelis and Palestinians support this “land for peace” compromise, while one-fourth holds out for complete victory over the other side.

Rejectionists on both sides repeatedly undermined efforts to realise that compromise. Starting in the early 1970s, religious Israeli settlers and hardline Israeli nationalists pushed Israel into a disastrous policy of creating and expanding settlements on Arab lands in the West Bank, in violation of common sense and international diplomacy. That policy blocked peace ever since, setting the stage for decades of bloodshed.

Nor have extremists on either side shrunk from political murder. Islamic militants killed Anwar Sadat, the Egyptian peacemaker, while a Jewish militant killed Yitzhak Rabin, the would-be Israeli peacemaker. Violent extremists on both sides have ratcheted up their actions whenever the majority succeeded in getting closer to peace.

For the past 10 years, the greatest practical barrier to peace has been Israel’s failure to carry out any true withdrawal to its 1967 borders, owing to the political weight of hundreds of thousands of settlers in the West Bank and the religious and secular communities that support them. This remains the crucial truth; the rest follows as tragedy.

Even when the US or Israel have tabled peace offers, such as at Camp David in 2000, they have included convoluted ways to sustain the West Bank settlements and large settler populations, while denying an economically viable and contiguous Palestinian state.

The most recent debacle began when President George W. Bush called for Palestinian democracy in 2004, but then refused to honour the democratic process. Hamas, a radical movement, won the Palestinian election in January 2006, but not before blatant pre-election meddling by the US in favour of Fateh, which merely helped to boost Hamas’ legitimacy. Then, after Hamas won, the US and Israel immediately orchestrated a cutoff of finances to the newly elected government, including even Israel’s transfer of Palestine’s own customs revenues, which Israel collects as the occupying authority in control of the borders.

Rather than act pragmatically, and deal with Hamas in government on the basis of its actions vis-à-vis Israel, the US and Israel demanded from the outset that Hamas recognise Israel’s right to exist as a precondition for continued financial flows.

The US and Israel believed that they could force Hamas into submission even before negotiations with the new government began. This is the hubris of believing that brute force and threats, rather than actual negotiation, can yield solutions. The result was predictable, despite US and Israel expressions of shock at recent developments. US and Israeli pressure deeply compromised Palestinians’ access to water, food, medicines and physical safety, especially in overcrowded Gaza.

Although Israel formally withdrew from Gaza, its complete control over the borders, infrastructure, transport and taxation, together with its regular military incursions in response to shelling from Gaza and its killings and capture of senior Hamas officials, left Palestinians there desperate. In this mix, violence escalated. Hamas did not fold in negotiations. Instead, conflict broke out between Hamas and Fateh, leading to Fateh’s collapse and desperate flight from Gaza. In a near-parody of external interventions, the US and Israel encouraged President Mahmoud Abbas of Fateh to dismiss the Hamas-led government, and to declare a new Fateh-led government in the West Bank.

Gaza is now under Hamas control, and the West Bank is perhaps under nobody’s control. Israel has said that it will squeeze Gaza still further, as if the population can be crushed into submission. But there are far too many weapons and young men prepared to die for that to occur. There is, alas, still only one settlement possible, based on true compromise, not unilateral imposition. No amount of machinations by outside powers or internal forces will impose a settlement. Israel and Palestine will have to reach an agreement based on the fact that they share a small and contested space.

The problem is that hatred and demographic changes are making, many people believe, even the two-state solution impossible. A few hope for a single secular democratic state. But many more have lost all hope. My view is that a two-state solution of peace and mutual respect remains possible, but perhaps for not much longer.



The writer is professor of economics and director of the Earth Institute at Columbia University. ©Project Syndicate, 2007. www.project-syndicate.org

Friday-Saturday, June 22-23, 2007

China's Lessons for the World Bank

Interesting that China is expanding rapidly its own financial involvement globally. In many cases this is related to ensuring supplies of resources such as oil that will be much needed by China's rapidly growing economy.

China’s lessons for the World Bank

by Jeffrey Sachs

The China Daily recently ran a front-page story recounting how Paul Wolfowitz used threats and vulgarities to pressure senior World Bank staff. … At the same time, while the Wolfowitz scandal unfolded, China was playing host to the Africa Development Bank (ADB)… This is a vivid metaphor for today’s world: while the World Bank is caught up in corruption and controversy, China skilfully raises its geopolitical profile in the developing world.

China’s rising power is, of course, based heavily on its remarkable economic success. … I had the chance to participate in high-level meetings between Chinese and African officials at the ADB meetings. The advice that the African leaders received from their Chinese counterparts was sound, and much more practical than what they typically get from the World Bank.

Chinese officials stressed the crucial role of public investments, especially in agriculture and infrastructure, to lay the basis for private-sector-led growth. In a hungry and poor rural economy, as China was in the 1970s and as most of Africa is today, a key starting point is to raise farm productivity. Peasant farmers need the benefits of fertiliser, irrigation, and high-yield seeds, all of which were a core part of China’s economic takeoff.

Two other critical investments are also needed: roads and electricity… Farmers might be able to increase their output, but it won’t be able to reach the cities, and the cities won’t be able to provide the countryside with inputs. The officials stressed how the government has taken pains to ensure that the power grid and transportation network reaches every village in China.

Of course, the African leaders were most appreciative of the next message: China is prepared to help Africa in substantial ways in agriculture, roads, power, health, and education. And the African leaders already know that this is not an empty boast. All over Africa, China is financing and constructing basic infrastructure. During the meeting, the Chinese leaders emphasised their readiness to support agricultural research as well. They described new high-yield rice varieties, which they are prepared to share…

All of this illustrates what is wrong with the World Bank, even aside from Wolfowitz’s failed leadership. Unlike the Chinese, the bank has too often forgotten the most basic lessons of development, preferring to lecture the poor and force them to privatise basic infrastructure, rather than to help the poor to invest in infrastructure and other crucial sectors.

The bank’s failures began in the early 1980s, when, under the ideological sway of President Ronald Reagan and prime minister Margaret Thatcher, it tried to get Africa and other poor regions to cut back or close down government investments and services. For 25 years, the bank tried to get governments out of agriculture, leaving impoverished peasants to fend for themselves. The result has been a disaster in Africa… The bank also pushed for privatisation of national health systems, water utilities, and road and power networks, and grossly underfinanced these critical sectors.

This extreme free-market ideology, also called “structural adjustment”, went against the practical lessons of development successes in China and the rest of Asia. Practical development strategy recognises that public investments - in agriculture, health, education, and infrastructure - are necessary complements to private investments. The World Bank has instead wrongly seen such vital public investments as an enemy of private-sector development.

Whenever the bank’s extreme free-market ideology failed, it has blamed the poor for corruption, mismanagement, or lack of initiative. This was Wolfowitz’s approach, too. Instead of focusing the bank’s attention on helping the poorest countries to improve their infrastructure, he launched a crusade against corruption. Ironically, of course, his stance became untenable when his own misdeeds came to light. …

The good news is that African governments are getting the message on how to spur economic growth, and are also getting crucial help from China and other partners that are less wedded to extreme free-market ideology than the World Bank. …

The Wolfowitz debacle should be a wake-up call to the World Bank: it must no longer be controlled by ideology. If that happens, the bank can still do justice to the bold vision of a world of shared prosperity that prompted its creation after the second world war.