David A. Morse Lecture With Ajay Banga

On the eve of his first annual meeting, World Bank president Ajay Banga discusses the bank’s ambitious roadmap at a time it is being called to lead the world in addressing intertwined challenges of poverty alleviation, development, and climate change. The bank’s evolution aims to give the 78-year-old institution a rejuvenated mission and a new approach that focuses on impact, speed, simplicity, and accessibility.

The David A. Morse Lecture was inaugurated in 1994 and supports an annual meeting with a distinguished speaker. It honors the memory of David A. Morse, an active Council on Foreign Relations member for nearly thirty years.

FROMAN: Well, welcome, everybody, to the David A. Morse Lecture, a conversation with Ajay Banga. David Morse was a longtime Council member, a public servant, an internationalist, a lawyer, and a very generous contributor to the Council.

We’ve got over 350 people attending by Zoom. I was telling Ajay this is one of the most popular meetings we’ve had, just behind Kissinger and Sam Altman. (Laughter.) So it situates you somewhere—(laughter)—somewhere in there.

This part is on the record, and I think we have some press here as well who will be—who will be eager to hear what Ajay has to say.

It’s a great pleasure to have you, Ajay.

BANGA: Thank you. Thank you, Mike.

FROMAN: Longtime friend—

BANGA: It’s a pleasure to see you here.

FROMAN: Thank you. Longtime friend, colleague. Actually, my former boss. In fact, you never quite gave me that last performance review. Would this be a—(laughter)—would this be a good time to do that?

BANGA: It’s coming in the public session.

FROMAN: Yeah. (Laughter.)

All right. You’ve been at the Bank now a little over a hundred days, a hundred and twenty days or so. Biggest surprise, upside, and downside?

BANGA: Hmm. The biggest upside is that the quality of people in the Bank are actually quite amazing. When you’ve spent time with people at the lower level, medium level, upper level, whatever level you go, and you listen to their stories of how they grew up, the things they dealt with, what they did to get to where they did, and how they got their notches on their belt, it is actually quite inspiring. And I could give you a couple of stories, but—(inaudible)—we would lose time on doing that. You get the idea. They’re just amazing people. And when you get down to talking to them, you realize each of them could have another career in another place and earned probably a great deal more money, but yet they chose to be a part of this institution. And some of them have been there two years; some have been there forty years. And each of them is in their own way a really good example of caring about what they’re trying to do in their own space.

The biggest surprise is how, when you put all that together, you still don’t end up with an institution that should be delivering at a hundred out of a hundred in today’s difficult situation. And so when you—when you think about the world today and you think of what I call a perfect storm of crises—and I’m sure every generation thinks that their generation had a perfect storm of crises similar entirely to mine—and mine is that the combination of poverty that actually has improved for the prior three or four decades, but over the last four or five years has hit a wall and in certain cases has reversed with a pandemic, with climate change, with fragility. There are a hundred million people who are refugees today in the world, which is more than have been in that condition forever. And the average refugee spends sixteen years being displaced.

So, I mean, when you put all that together with food insecurity and soil degradation and the challenges of multilateralism, I feel like we’re in a perfect storm. And in that perfect storm, an institution like the Bank is needed more than ever. The ability to step up to that and lead from the front for people who are so smart, not being able to get that done as an institution as a whole leads me to understand that there’s something dysfunctional in the way the institution needs to be changed and operated with. And that’s kind of what was my biggest surprise. I expected it to be different, and I’ve found that to be a bigger hurdle than the people.

But if you had heard criticism, it is all about the people don’t care. It’s not true; the people care. It’s the institution that needs to be changed. And as I told our board at the beginning of my process, I believe that a fish rots from the head. And at the head is the leadership of the institution, including the board and the president and the senior management. It’s very easy to blame the rest of the institution. You should start with yourself and see what you can do to change the institution for the better.

FROMAN: Well, let’s build on that because, as you said, the crises are many. The challenges are great, everything from infrastructure, poverty alleviation, education, health, gender, and now of course a priority on climate change. How do you reconcile and prioritize? You’ve got limited resources. One CEO I worked for, maybe two CEOs I worked for, taught me that if everything is a priority, nothing’s a priority. What are your priorities? And how do you balance particularly poverty alleviation against the demands for climate change?

BANGA: So, first of all, I think this is a false way of thinking, that somehow you can solve for poverty and not care about the others. I think these are intertwined challenges.

And you know, that’s one of the problems, by the way. When I was traveling around the world, the first thing you hear is the Western world talks climate as emissions, let’s change the emissions-heavy growth path of the future. The non-developed world—the developing world, the Global South, whatever name you want to give it. I hate that Global South name, but let’s assume that name is acceptable as a way of us understanding who we are speaking about. That group of people believes climate change is rainfall, heat-resistant varieties of seeds, soil degradation, loss of biodiversity, hurricanes and catastrophes. So we kind of—both are important, by the way. But we run the risk of being like two ships crossing each other in the middle of the night, you know, fog—with foghorns blaring. That’s the risk we have.

The idea that somehow you can disconnect rainfall adequacy from poverty alleviation is a myth, because if you grow up in India, and you think about two crops a year because you have the right amount of irrigation and/or rainfall and then that doesn’t happen, it becomes one crop; when it becomes one crop, you can no longer afford the cattle you kept; because you can no longer afford the cattle, you no longer make the money from dairy; when you no longer make the money from dairy, you no longer keep the farm labor; when you no longer keep the farm labor, guess what child gets taken out of school to help you on the farm? The girl. So all the poverty stuff we all talk about, four years of lack of rainfall, that girl child is back working on the farm.

Somehow, we have to make people understand that this is a false choice, this is not the way to think about changing the world, that I would segregate poverty from climate, poverty from pandemics, poverty from food insecurity, poverty from fragility, poverty from a war in Ukraine, you—Sudan. You know, you can’t do this. So I just don’t subscribe to that point of view.

I think the problem is much more complex. The way I’m trying to approach it is to define the Bank’s business in five verticals.

The first vertical is people. You’ll recognize the terms. People is education, health care, social benefit schemes, that kind of stuff.

Second is prosperity—jobs, credit from small enterprises, financial inclusion, trade policy, sensible stuff.

Third is planet—mitigation, adaptation, water. I believe the next big crisis will be on water. And I’ve been saying this since I worked for Sangi (ph), that that’ll be our challenge. And I believe that even today, twenty-five years after we first got to know each other. I consider it to be a problem even today—in fact, an exacerbated problem which will lead to war if we’re not careful.

And then we have—you know, the next one will be infrastructure. So that has to do with physical infrastructure—schools and bridges and airports and the like.

And the last one is digital, because that’s transforming our world.

And what I want to do is have those five—people, prosperity, planet, infrastructure, digital—as the areas we develop our knowledge in and share that for best practices across the world. While people want our money, our money is a smaller and smaller percentage of the budget of countries as they improve. In fact, our job should be to make ourselves irrelevant for the money for countries. But we should not become irrelevant for knowledge because knowledge is what will drive the ultimate growth and equalization in the world. And so our knowledge bank has to be these five verticals with a horizontal that measures what’s happening on gender, what’s happening on jobs for young people, what’s happening on carbon emissions avoided; holds our feet to the fire for outcomes, not for input.

That’s the Bank we’re trying to design. And then that, done with the right resourcing, done with the right partnerships with other multilaterals, with the private sector, that kind of stuff is what I’m trying to get.

FROMAN: Well, let’s get to that. You’ve talked about an evolution strategy for the Bank—a new operating model, a new way of looking at their financial strength, new leveraging of the—of the balance sheet. How difficult will it be to change the way the Bank operates?

And you’re about to go off to Marrakesh for the annual meetings in a couple of weeks. What do you hope to get out of those meetings in terms of your new vision for the Bank?

BANGA: So I think the—we’re going to define the vision of the Bank differently and go from just—the Bank had a set of goals since I think the time of Jim Wolfensohn, who was the guy who really breathed fresh air into the Bank around the topic of poverty and shared prosperity, and they were called the twin goals. You know, the Bank is lovely at coining terms for stuff, so twin goals. I think there’s a senior vice president for acronyms hiding somewhere in the—(laughter)—in the building that we—you know, I think we exported him from Citigroup or her from Citigroup. And we need to get rid of those people because they just cause more consternation. But there is this thing called the twin goals, and I think the twin goals have to change to being the elimination of poverty but on a livable planet because of the intertwining nature of our crises. And livable planet allows me to include climate, pandemics, fragility, and the like.

And I believe if you widen the aperture through which you look at a problem, you will find creative solutions to the problem. If you look at it narrowly, you will only address what you see. So we’re trying to widen the aperture to include this bigger idea and picture. That’s part of Marrakesh. This, I believe, every shareholder country is excited by. Everyone I’ve spoken to has indicated a great deal of support for the idea of doing this.

Most people I’ve spoken to love the idea of those five verticals. I haven’t yet run those five verticals through a famous paper that goes to the board and has to be approved. That’s part of the process. But the board understands where I’m going with it and likes the idea.

The capital adequacy is the next part. That is a G-20 kind of set of ideas of various ways, from leveraging the balance sheet to hybrid capital to portfolio guarantees to, you know, trust funds to callable capital to using SDRs. And there’s a whole bunch of technical mumbo jumbo that we can talk about if you want, but those are already launched and people are beginning to subscribe to them. The U.S. has put a fairly big proposal into whatever goes through Congress in the future. Germany has promised stuff. The Nordics, Japan, Korea, Saudi are all putting money into this capital adequacy. I believe that if all this goes through, including the U.S., we could raise somewhere between 100 (billion dollars) to $125 billion of extra lending capacity in the Bank, which is pretty good. Not enough, but pretty good.

Then there’s the issue of partnerships. I believe we can actually—that’s up to us. We are the largest multilateral development bank. We need to be willing to partner. Otherwise, people see us as the one who’s the big gorilla in the room.

I’ve just launched a big partnership with the Inter-American Development Bank where we are partnering on three things together. I mean, they can do whatever else they want in their region and I can do other things too, but those three we will work together: raising money for the Amazon, helping with climate challenges in the Caribbean with hurricanes and catastrophes, and digital learning for children.

And so I’m trying to do the same thing with the African Development Bank, trying to do something similar with the Islamic Development Bank, trying to find ways for us to create areas where we can be, you know, two plus two equal to five. That’s kind of the partnership side.

All this done, Mike, there’s not enough money in the multilateral development world, or in government coffers, or with philanthropy to solve for the estimates that people have, which all go into the trillions just for renewable energy let alone poverty, let alone fragility. So we have to get the private sector to be a part of this change, and that’s kind of the next set of conversations. When we come to discussing where you raise the money from, I’ll give you some thoughts on that. But all that is part of what’s going to go on in Marrakesh.

What will be hard is two things. The first thing is this moving from input to outcomes that I casually mentioned. The institution is built for measuring dollars and projects; not girls who go to school and how many people got a better job because of a skilling institute, but how many carbon emissions you avoided because of mangroves in Indonesia. And the reason for that is those things take seven to ten years to deliver. Nobody’s in their job that long. So in order to evaluate people during that period, you end up with a shorter timeframe, and shorter timeframes lead to numbers rather than outcomes. This is not easy to solve for. It sounds very simple and everybody who’s idealistic will lecture me how I should do it. I would love for them to come and help me do it. (Laughter.)

So that—I don’t like all this random criticism from armchair critics, I’ll be very honest. I think this is a very difficult job and a very serious job. And if it fails, we lose the one instrument we have to make a difference. So these armchair critics who would rather blow it up, they should go and put their bomb under their own chairs because they’re not being helpful. The world needs a World Bank. And the question is how to make it run better. That criticism is welcome, but it has to be practical.

I get to outcomes and it’s easy for me to say, well, you just see how difficult—you all work somewhere. You’re all doing jobs. How do you give a person feedback about how they are doing if whatever is going to be judged about them is ten years after they left their job? How do you plan to deal with that? So we have to find a way to bridge that and be practical about it. But I will. I’m focused on it as an important part of our growth. That’s going to be a hard one.

The second really hard one is that the dysfunctionality that they are living in in multilateralism—the CFR understands that better than most people—is in my boardroom every day, because I have twenty-five board members. I’m blessed with them. They come from all the different countries who are my shareholders. And some of them represent individual countries. Some of them represent as many as twenty-five countries at a go. They do tend to—while they do care about the Bank in one way, they also bring their concerns of their countries they represent with them. So, you know, this is exciting, and that’s going to be a hard thing to find common ground because, as you can imagine, you know, what the developing world would like to put in—small thing, common but sort of different—you know, common but differentiated responsibility for climate change, words that were agreed upon in Paris and the G-20 leaders declaration can become a big problem in the Bank.

So these are things that are testing me in ways that I was not ready for in any way. This is not—in the private sector, this is not what I would spend, you know—

FROMAN: You must really enjoy having a board that—

BANGA: I love it.

FROMAN: —meets twice a week looking over your shoulder.

BANGA: That’s the other—yes. There is there a resident executive board.

FROMAN: It’s like the best of corporate governance.

BANGA: They do meet twice a week. I will tell you I don’t go to the board meetings. (Laughter.) And I have said I will come to one board meeting a month where we will focus on either a strategic vertical like water or a strategic horizontal like East Africa with a couple of challenged countries, or West Africa and what’s going on in the Sahel. Those, to me, are discussions where a board and the president and management need to really iron things out. The other meetings they have are mostly almost like an investment committee in a private equity firm—very important, but I think they can be managed better with the right delegation and the right processes, which reduces the workload of management, which is too busy trying to manage the eddies and should be spending more time managing the client, which is the country and the project in the country.

So, you know, we’re trying to—there’s things to fix to do with outcome versus input, and there’s things to fix with our governance processes and the methodology of dealing with the challenges of multilateralism. I think these two are going to be hard, very hard challenges.

FROMAN: Let’s go back—let’s go back to the money. And you made reference to the private sector, and certainly some of the areas that the Bank is involved in—like the energy transition—it may be attractive for the private sector to invest in. And the question is, how can the Bank crowd in private investment? What kind of tools does it have in a concrete way to really make it possible?

But other parts of what the Bank does—education, health—

BANGA: They take less private sector.

FROMAN: There’s less of a return and there’s unlikely to be a lot of—

BANGA: Yeah, although there is a role for private sector there.

So I just set up what’s called a private sector lab. Remember, we have the International Finance Corporation, the IFC, which is principally an organization that deals with the private sector in an effort to create the right circumstances to invest together. People forget that’s actually doing a lot of work. They do more than a third, or a third of our lending every year comes through the IFC. They’ve got asset-management companies. They’ve got debt-management systems. They’ve got all kinds of financial instruments to help invest in many countries. They’re actually a fairly successful organization. They need to work much faster, much quicker, much—you know, sort of, let’s say, with a sense of urgency than they currently do, because they’re part of the same dysfunctionality of governance. But they’re a pretty good organization.

But the problem is our aspirations are for many multiples of that number, and that’s not going to happen with the IFC alone in its current form. So what we’re trying to do is to create what we call the Private Sector Investment Lab, and that’s co-chaired by Mark Carney and by Shriti Vadera. And we’ve got fifteen of the top CEOs of pension funds, asset-management companies, banks, and operators in the room. We had our first meeting last week. And the idea is to pick topics off one by one and get from them what could the Bank do better for them to feel reassured about the kind of risks that they cannot possibly cater to in their business models.

This is a very carefully chosen set of words. They need to take the risks that they need to take to make the return to the private sector wants to make. That’s their problem. I’m not going to subsidize that for them. But the problem is not that. The problem is when the risks are at the extremes, almost no one knows how to factor that into any kind of spreadsheet.

So take FX. If the Indian rupee depreciates on the average by between 5 and 7 percent a year for the past 30 years—not true every year, not true even over three to four year periods, but true over thirty to forty years. It does the depreciate at 5 to 7 percent per year on the average. Most investors who are investing in India, you would expect them to assume that kind of depreciation in their foreign exchange calculations. You may even expect them to be willing to absorb 9 to 10 percent, as part of the fact that they might make better return, risk-adjusted, after that. Because finally, it’s all about risk adjusted yield. That’s what we do business in, right? Risk adjusted yield. The problem is, what if the rupee depreciated 20 percent tor that seven, eight year period. Now there is no private investor who can absorb that risk. There is not a deep or wide enough hedging market for even the Indian rupee, even today, that will take you a ten-year hedge. They will give you a three-to-five-year hedge. They’re not going to give you a ten-year hedge.

So then the problem becomes, if they’re back to renewable energy and mitigation, which by the way does not need to be done in 189 countries. We need to focus on ten countries where the growth of emissions will be so high if we don’t change to renewables that all the work we do in the developed world to reduce the use of emission-heavy energy will be lost in those ten countries. That’s what we need to do to get to 1.5 degrees. It’s a ten-country issue, in this particular case. Those ten countries happens to be middle-income countries, where there is some hope for the private sector both in terms of scalable models and like that renewable energy could make money. What they can’t deal with is this outsized FX risk and any outsized political risk.

What we can do is to help with regulatory policy reform in that country, which takes away a large part of the risk. If you’re an investor, if you don’t know whether the tariffs are going to be what they are pretend—what they say they will be, you’re not going to invest in renewable energy. So that you can help, by getting a clear policy laid out. You can help with having an arm in our institution called ICSID, which settles disputes with the sovereign. That’s useful. You can help with political risk insurance. We have an arm called MIGA, multilateral—I’ll tell you, we love our acronyms—Multilateral Investment or insurance Guarantee Agency. One of the two. There are I’s. Or, maybe it’s both I’s. So anyway, it’s not the Five Eyes. That’s another topic for another day. (Laughter.) So just considering who I am. So that’s another topic.

So the—you get MIGA to take out the political risk. FX risk is the problem. It is an outsized issue. That’s one of the things we’re trying to discuss and figure out ways through. That’s the way to involve the private sector. Get them to understand that the risks that are outside the band of what they can afford to ever calculated upon, that somebody is there to help them take part of the risk, part of the ownership. And I think they will then be willing to step in. Having talked to a lot of investors, there is a lot of interest in renewable energy in Indonesia, and India, in Vietnam, and so on. The challenge comes down to political risk, FX risk. That one we can help with. This one we need help to figure out.

There’s another thing which we should not lose track of. And that is domestic resource mobilization. I believe that a lot of countries can only be helped if they want to help themselves. And one of the things they have to do to help themselves is to care about domestic policy, on raising revenue and managing expenses. A lot of these countries have tax realizations of 2, 3, 4 percent of GDP. I will tell you, that is kind of inappropriate. And they need to find ways to work it up to a better number, and then put the money back into helping people with their extra revenue. This is a chicken and egg thing. They sit there saying, I can’t increase my taxes till you give me money to put into the country. It doesn’t work very well. So that needs to be discussed and thought through.

And then the last one, which bugs me even more, is the world spends $1 ½ trillion on subsidies for fuel and agriculture and fisheries, most of which have been proven to have very poor environmental effects in our planet. The cost of those environmental negatives, externalities as people like calling them—I love the word “externality.” It makes it sound like it’s somebody else’s problem. (Laughter.) So those things cost another 6 trillion (dollars). When you add the two things together, that’s 7 ½ trillion (dollars). That is a few more zeros than even Sandie taught me to respect. It really is. It’s a lot of money. If we were to redirect some of that money—I refuse to agree that there isn’t enough money available. It is the choices we make with the money we have that determined the money we have left over for the choices we do not make. And I think this has to be a hard discussion that needs to be had with people in power across the world. Seven-and-a-half trillion (dollars) on harmful subsidies.

Now, when those subsidies help people who cannot afford certain things, I would be the last one to say take them away. In fact, if anything, we should put more money for those people. But I was in Nigeria. The new president just got voted into power. I went to see him three or four weeks after he got voted into power. In his campaign, he said he would remove the fuel subsidy in Nigeria. When I was running Central Europe, Middle East, Africa for Citi back in ’98-’99, Nigeria had fuel subsidy. Let me tell you what happened to that fuel subsidy. The poorer guy doesn’t drive a car. They’re not getting any benefit from fuel subsidy. Most fuel subsidies seems to be the fuel would get taken across the border and sold in the neighboring country at full price. Guess who made that money? That’s $10 billion a year out of that $30 billion deficit. He ripped it off on the first day of his presidency.

Now, I don’t know whether ripping it off was a good idea because it caused consternation. But the idea of tackling that subsidy and putting the savings back by caring for people in Nigeria, we should applaud that guy, for this thing. I’m not judging him on anything else. Please don’t get me wrong. I’m not here to judge politicians. I am here to judge actions. This, to me, is the kind of thing that needs a degree of courage to take on in many countries around the world. That’s something that I would not want to lose sight of. Yes, private sector. Yes, of course, get me more money for the multilateral banks, and let me stretch my balance sheet, blah, blah—turn it over more often, originate it, securitize it, all the financial engineering I can do. Then there’s the private sector. Then there’s, you know, subsidies.

And then, of course, there’s—to me, the last big one is carbon markets. And carbon markets get criticized by everybody because people think it’s a cop out, and that Air France will buy, you know, carbon credits and keep flying fossil fuel airplanes. Yeah, the question is, would you like to be able to fly or not? If you don’t plan to fly, you know, you should think about how this is going to change. Money has to go into figuring out how to make planes fly not on fuel. But meanwhile, you’re not going to be able to get by by making it zero. So in some way, a carbon market which transfers resources from the richer world to the countries that actually are blessed with sun, wind, and forests, which coincidently happen to be in the Global South. Done the right way, there is a real transfer of resource that will happen without it being a tax on citizens living in the Western world. This idea that somehow we will tax our American living in Mississippi so that money can be invested in Sudan is a lovely idea. It ain’t gonna fly.

And so, because politics will come in the way, the poor president who implements the idea will soon be history. So in a democracy, that’s not going to happen. And we are in a democracy. And we kind of like it. So that’s not going to change. Yet the idea of transferring willing resources by people opting to pay what they think is appropriate for credits that could be gathered. So I was in Indonesia, and we are redoing mangrove plantations, the government of Indonesia. They will save, if they do it correctly over the next two years, sixty-seven million tons of carbon emissions over the coming decade with those mangroves. Mangroves, by the way, are five times better at absorbing carbon than tropical trees above the soil and eight to ten times better under the soil. So if you do that the correct way, along with creating, you know, a sort of economic opportunity for the people who live there and so on, you could save this kind of carbon.

Let’s assume we will launch a voluntary carbon market, where the World Bank were to certify the quality of those credits so there’s no greenwashing. So fourteen countries out of forty-seven have agreed to allow us to do an end-to-end forestry audit to their country. So they cannot deforest here and reforest there and claim credit for this while destroying forests here. Those fourteen audits almost complete. Let’s assume we could launch a voluntary carbon market and these sixty-seven million tons over a decade, over a decade, came onto the market. And let’s assume all you got was ten bucks a ton. Not fifty. Not 120, that everybody thinks is the right price. Ten bucks a ton. That’s $670 million that will go to Indonesia. The total cost of the financing the World Bank is putting into this project is 420 million (dollars).

This does not include the economic benefits to people living in that area from the mangrove plantation. If I added that together, the 420 million (dollars) gets paid back in the first five years anyway. Forget about the carbon credits. So I think—now we can criticize the idea, but if somebody’s got a better idea you should produce it. Carbon taxes are not a better idea, because they won’t fly. They’re just talk. And we need to get past the talk, because my grandchild’s time is running out. That’s the issue. And it just irritates me that this conversation not being had with the transparency needs to be had, which is we don’t have time. So we need to get with the program.

FROMAN: I have a ton more questions for you, but I want to open it up to the group. I’ll ask you one last one while people are preparing their questions. We have got people in the room and people online who will have questions. Just your own personal story. You talked in the beginning about the personal stories of the staff of the Bank, and how inspiring they were. You have a rather unusual personal story, as the head of the Bank. Born and raised in India, worked for a series of multinational corporations—Nestle, Citi, MasterCard. The Indians view you as a champion of the Global South. The American president views you as successful American. The private sector views you as one of their own. Who are you? (Laughter.) And what lessons do you learn from your past that you take into this job uniquely?

BANGA: I just who I am. I am what you see. Mike, you work with me as a colleague at Citi. You worked with me as a colleague at MasterCard. When you were U.S. trade rep and G-20 sherpa, you were unbelievably accessible to us guys in the business world. You’re not new to me. I haven’t changed. I will tell you exactly what I think, even if it’s not the most popular thing to be told. And so that’s why I will not perfume a pig. I will not lie on these topics. I will tell you what I think. I’ve learned that the hard way over the years by a couple of mentors, and one of them is sitting here. But I have learned that it’s not in your best interest to perfume a pig, because when it comes out the other side of the snake is going to smell really bad. And so it’s better deal with it before it gets to that stage. And I think that’s an important thing.

The second thing I’ve learned over time is do not take no for an answer, because a lot of people will tell you why this won’t work because it was tried earlier. I don’t care. I’m going to try. And I’m not going to accept no for an answer easily. I think that those two things are who I am. This part of a private sector, public sector, India, America, this is just my nature. I was born there. It’s true. I lived there for most of my life. I joked with the prime minister, which went viral for some reason in India, I basically told him, I’m the ultimate making in India, which is famous economic philosophy.

Because I was born there, I was educated there. I have not had an education outside of the U.S., not even a training course, because nobody thought fit to send me to a training course when they should have invested in me. (Laughter.) But I—you know, but then I’ve lived here for twenty-three years. And I’ve lived in Asia and Hong Kong in the financial crisis. And I’ve lived in London, and I lived in Brussels, and I’ve traveled everywhere. And it’s who I am. I’m an American citizen with an OCI. I have very little roots personally left in India because my family is all kind of moved out. But I did grow up there. That part is just who I am.

And the one thing I will tell you is, aside from this idea of speaking what I think and being—and my beliefs on not taking no for an answer, I do have a very strong sense of urgency. And I don’t know whether it is my age as I’ve got older. I’m sixty-three now. And, you know, kind of you feel that there isn’t that much time. And so you got to get with the program.

FROMAN: Excellent. All right. Let’s open it up for questions. I see Gillian Tett way in the back. Is that Gillian Tett?

BANGA: Gillian gets a shot at me again? She just got one the other day.

Q: I do. I know. Are you willing to lose the AAA rating at the World Bank, when you said in order to maximize lending, when you talk about financial engineering? And do you think that there is sufficient agreement between the U.S. and China, as the big shareholders, to actually agree to a capital increase?

BANGA: No, I’m not willing to lose the AAA lending—that AAA limit, because if you do you actually cannot get the magic of the Bank to work, which is that you raise the money from sovereigns and from countries. That AAA rating allows you to raise bonds in the market at an—at an advantage price, which enables IBRD, along with IDA, which is another topic altogether, for poorer countries. But, IBRD, to be able to provide money longer term and at better pricing than typically the sovereign or a company in that country could have raised from overseas.

You may not be able to compete with domestic capital markets, if they become deep and wide enough, because you do tend to bring foreign exchange money. You got to convert it and carry the FX risk and so on. But what I think losing the AAA rating actually loses the model of the Bank. And if you look at the G-20 expert group report recently, that is why they dropped that idea even though a few people had proposed it earlier. I think when interest rates were very low, the gap between AAA and others looked artificially low. As we’ve all learned to our cost over the last year or two, interest rates don’t stay low forever. And you must plan for cycles. When you plan for cycles, losing AAA would be a very dumb idea.

The part about China and the United States. I have had no conversation with them about changing the shareholding as of now. I’ve been here 120 days, and that’s not been priority number one. I’m focused on getting this capital adequacy framework done, where actually the kind of capital they’re putting in—hybrid or portfolio guarantees and the like—allow me a one-to-eight leverage but don’t change the shareholding pattern of the institution. There is no doubt that countries over the years, as their economic weight in the world has changed they would like to have a higher percentage of shareholding by contributing more capital. The World Bank actually has done that in 2018, and the shareholding of China and India and Brazil went up, and some other countries came down, including the United States.

I think that when the next time comes around for a general capital increase, this will have to be a real discussion. Meanwhile, and I will say this—I’ve said this in public in India as well—the Chinese are a relatively good partner for the Bank. They are constructive. They want to engage. The premier when I met him said very clearly to me: There will be troubled geopolitically, I get it, but I understand from your public statements that you want to find the common ground we should work on. And I said yes. And the common ground to me is climate change, health care. And he added rural development to it. And I’m going to work on those three.

FROMAN: OK. Let’s go online.

OPERATOR: We will take our next virtual question from Tara Hariharan.

Q: Thank you so much. My name is Tara Hariharan. I work at NWI, a hedge fund in New York.

Mr. Banga, could you update us on two different issues? Firstly, regarding China, how are talks going with China regarding emerging markets debt relief? And, second, also related to China, how are public and private funding coalescing so far under the Partnership for Global Infrastructure and Investment, which is basically the U.S. alternative to the Belt and Road? Thank you.

BANGA: PGII, I think you should ask the U.S. government. I’m not running that. I’ve just—I attended a meeting recently and it looked like a pretty constructive meeting. So I don’t know that I can give you any insight into PGII. So I’m sorry, but that one I don’t know how to help you.

The first one is an important question. As we all know, a lot of countries took a great deal of debt to do the right thing in their country. But I think, you know, interest rates were different. Foreign exchange rates were different. The world has changed. And I said you should always plan for cycles. Clearly less than thoughtful planning happened in a number of places. And now debt is crowding out the ability—servicing that debt is crowding out the ability for those countries to do anything for their citizens. So they’re in deep distress, many of them.

There are multiple creditors at play. The last time we went through this there were fewer creditors. Right now there are more. And one of those is certainly China, which has played a bigger role in lending money into some of these countries. But there’s also other creditors, including commercial creditors and other bilateral creditors. Just to be clear, by the way, a lot of countries in the world do bilateral lending. Don’t forget that. And so there is this issue percolating in the debt system. The G-20 asked IMF to take the lead in the World Bank to be a close partner on setting up a sort of debt sovereign roundtable, which we have, where we are discussing the learnings from this debt and trying to figure out how to not get into this crappy situation, again. I’m almost certain we will try and learn but people will do bad stuff again.

But the reality of sorting out the debt is that you have to get everybody at the table with a clear understanding of what that exists, at what price, with what covenants. The problem is that a lot of the debt that was given has secrecy or nondisclosure clauses attached to it, which has made it very difficult to go through this negotiation. Having said that, China was very constructive in the Zambian negotiation, which actually did lead to a good outcome for Zambia a couple of months back. And we now are deeply engaged on the next three or four countries. So watch this space.

FROMAN: OK. David Miliband.

BANGA: Oh, God, I was talking about—

FROMAN: I didn’t realize we allowed non-Americans.

BANGA: We’ve got—(inaudible)—a hundred million refugees sitting here.

Q: Thank you. Thank you to—thank you to both of you for your leadership and your urgency.

BANGA: Are you wearing glasses, or what are you doing?

Q: Sorry?

BANGA: Are you wearing glasses?

Q: No.

BANGA: Oh. (Laughter.) I need glasses. OK. (Laughter.)

Q: I apologize. I could wear—I could borrow some glasses, but—the man in front of me has got some glasses on.

In this David Morse Lecture a couple of years ago, I explained the changing geography of poverty in the world. And I pointed out that 50 percent of the world’s extreme poor now live in fragile and conflict states, and that’s going to rise to two thirds by 2030. These are places that are also, in significant ways, unlivable. And so they bring together the poverty and climate side.

However, they challenge the traditional operating model of the bank. And when you talked about partnerships, you talked about partnerships with other international organizations. What about partnership with civil society, which would like to be a partner of yours in delivering your goals on the ground in these very difficult places, where sometimes governments are not present. Sometimes governments are in conflict. Sometimes governments lack capacity. But civil society is there waiting for a stream of IDA money that doesn’t go through governments but goes through and to civil society.

BANGA: So, as David knows, he’s had a recent meeting with my head of international because I believe that the IRC and the World Bank can do more things together in exactly the logic that David is saying. Further, I believe that we cannot find our own way to getting the right aid delivered on the ground. If he can find organizations of impeccable quality, who will have their own challenges—his business is not without challenges, and it’s just that you’ve got a terrific leader who’s transforming the place. And so we can do things together, and we will.

I would be careful about partnerships and CSOs being interpreted that we don’t have them. If anything, we have more than enough partnerships. We have more than enough CSOs. Reconciling their respective points of view is actually quite a challenge. So I just want to be clear on that. This is a very specific instance where I believe we can do more with organizations like yours.

And I’m actually looking forward to it. I was talking about you yesterday in the Bank in a different conversation where I want to learn from you on how you manage your people in some of these circumstances, because we are struggling with some of the challenges. And I told our team that I would connect them with you and with others like you whom you could help us meet, and we can just steal shamelessly from your experience.

FROMAN: Thanks, Lawrence.

Yes, right here on the—on the aisle.

Q: Hi. Thank you. Joseph Gasparro, Royal Bank of Canada.

Your time at MasterCard was a master class: Revenue tripled, market cap grew by 16X. There’s chatter that the World Bank should also grow. So is that 3X, 4X, 5X? (Laughter.) What’s the right price?

BANGA: Geez. (Laughs.) Good question. I don’t—if you—

FROMAN: Let me—let me add to his question. You said that some of the proposals will let you expand by 120 billion (dollars). Is that the optimal number, or should you be more like 800 billion (dollars)?

BANGA: Yeah, so I get that question. The—Larry Summers and N.K. Singh have led a G-20 export group with—(inaudible)—where Nick Stern and Tharman from—who now can no longer be on that group because he’s become the president of Singapore; quite small job increase. But that group concluded a very different level of capital injection to be provided to the World Bank. The G-20 has not yet accepted that report because there is disagreement among the G-20 about the willingness to have that number become a target to go to. So I don’t know where that will go. But if you discuss the intellectual underpinnings of that report, the intellectual underpinnings of that report say that we need a couple of hundred billion dollars of capital to be injected into the World Bank.

Now, let me lay out a few facts of the World Bank’s capital for you so you can understand how different that is from where we are today. This may surprise you as well; it did surprise me. I should have mentioned that in the beginning, but in the legion of surprises this is a lower one.

The paid-in capital of the International Bank of Reconstruction and Development—this is not IDA. IDA is what goes to the poorest countries. I’m coming to that. IBRD is what goes to the level of countries that graduate past that threshold. The paid-in capital of the International Bank of Reconstruction and Development is $22.6 billion. That is a pimple on a dimple on an ant’s left cheek compared to what we need in the world, just so you know—22.6 (billion dollars).

The retained earnings of the institution allowed it to reach $50-plus billion of equity. And the total lending the institution has managed to do is 800-plus billion (dollars) and has an impeccable payback record for the reasons of being a preferred creditor. So the Bank, actually, I think, is doing an unbelievable job for what gets talked about as the world’s premier multilateral bank with 22.6 million (sic; billion) (dollars) being put in by all the rich countries together—over seventy-eight years, if I may add.

So that’s why I come back to things like those subsidies. I really think a deeper conversation that is not one of finger-pointing or armchair criticism but starts talking about what needs to be done in our world to be—to be properly managed. From there, we expect the G-20 to agree to put in 200 billion (dollars). You can imagine they’re probably unlikely to buy off on that report. That’s the gap.

Now, IDA, on the other hand, receives every few years grants from countries very generously. Somewhere between 20 (billion dollars) and 25 billion (dollars) has been coming in frequently every few years. IDA leverages that up through the same AAA rating that Gillian asked me about and is able to raise that all the way to $93 billion for that period, this cohort of use.

But the next IDA replenishment is coming up in a couple of years, and what we need to do is to find a way to get that 20-plus billion (dollars) that’s coming in from the rich countries to begin to go up. Most of that money that comes in comes in under what’s called ODA, which is overseas development assistance. David knows this well. And his home country has led the way in reducing its contribution to ODA over the last, David, how many years? (Laughter.)

FROMAN: Coincidentally.

BANGA: Which is why I would love for you to go back to government. But that’s a different topic. So—but I think it’s the last three, four years, David, has it gone down? (Inaudible.)

Q: For the past six years, it’s been a percentage of—

BANGA: OK, so that’s the correct—

FROMAN: (Inaudible.)

BANGA: He knows the facts there. I’m not sure—(inaudible)—using him for the fact. And that’s gone down from 1 percent, David, to?

Q: Point-seven.

BANGA: Point-six. OK. Now—

Q: To 0.6 or 0.7, and then came down—

BANGA: —the current prime minister—

Q: Just a tiny point. You referred earlier to the refugees. About a third of British overseas development assistance is now being spent on integrating Ukrainians into British life.

BANGA: Indeed, indeed.

Q: And that’s actually a trend that’s happening across Europe.

BANGA: Indeed, indeed. And the current prime minister has made a commitment in Parliament to contribute to a future IBRD capital increase, and so that’s a good thing. So they’re kind of planning on that. But that’s the kind of challenge we’ve got.

So, you know, I don’t know what the right number is. I’ve decided I will not try and put an idealistic number out there. What I’m going to do is first do all I can to make the Bank work better. I want people like David out there saying: The Bank is a different institution because it’s leveraging its partnerships. The Bank works quicker, works faster. This will take me some time. I want that to happen.

Meanwhile, I want the capital-adequacy framework to be implemented to the maximum level so I can raise that capital that Mike just spoke to. I call that the better Bank.

Then I want to talk about a bigger Bank. And the G-20 leaders declaration clearly said better, bigger, and more efficient Bank.

So I think everybody’s getting to the right place. We just need to pace this the right way so we don’t snatch defeat from the jaws of victory.

FROMAN: Let’s go to an online question.

OPERATOR: We will take our next online question from Sheri Fink.

Q: Hi. Thank you so much for your talk today.

One of the first challenges that you mentioned in your introduction was pandemics. And the World Bank has been quite involved. So I’m curious to hear your urgent straight talk on pandemics. What do you see as the Bank’s role? What do you want to achieve? And what do countries need to do?

BANGA: Yes. The World Bank, after an initial period of four or five months of figuring out how to respond to the pandemic, finally stepped up big time and put about $14 billion into different aspects of vaccines and capacity-building and the like, and I think doesn’t get adequate recognition for what it did for the pandemic. But that’s a separate topic.

It has also contributed, with a lot of encouragement from Secretary Yellen and a few others and the WHO, into what’s called the Pandemic Fund, which is currently run in the World Bank as a trust fund with a couple of billion dollars in the first grants just going out in an effort to build predictability and, you know, analytical capabilities on the front end so we can start figuring out when and if we get hit by the next pandemic.

I would say then is unlikely—you know, if is unlikely. When is the correct question.

I don’t believe we’re out of COVID yet. My wife was down with COVID till the day before yesterday. She finally tested negative yesterday. So, you know—I tested negative this morning, so don’t panic. (Laughter.) So—and I’ve had my sixth vaccination, so I’m kind of vaccinated. (Laughter.)

And the—my belief is that we are woefully underspending on what we need to do to be able to build the capacity that’s going to be required for the next pandemic. Our health-care capacity systems as a whole are designed for peacetime. Pandemics are wartime. To be able to surge for war requires a very different way, I believe, of building health-care capacity. We have not constructed that. And therefore, changing how everything is built from a stable, predictable growth pattern in peacetime to the need you have for surges is going to be a very difficult and different conversation.

Having said that, clearly, humanity is capable of it. Look at the COVID vaccine. You know, when COVID started, I was a believer that it would take us ten years to get a vaccine. When I was with Raul (sp) at breakfast, we talked about this. And I thought it was going to take ten years. And, you know, lo and behold, six months later or eight months later we began to get the first vaccine doses out there. And I think that transformed the way I think about surge capacity on vaccines. But the problem is you need surge capacity on hospital beds. We need surge capacity on trained first responders. There’s so much to be thought through on surge capacity.

Just on the pandemic front itself, before I let that topic go by, I think we’ve got 2 billion (dollars) in there. We need 10 billion (dollars), not 2 (billion dollars), to be able to actually fund the kind of requests that are coming in from countries for good things to be done to build their capacity. So there’s work to be done still, even on the pandemic front.

FROMAN: This gentleman in the fourth row.

Q: Thank you for—thank you for your inspiring and refreshing talk. I’m Ko-Yung Tung. I used to—I had the pleasure of working with Jim Wolfensohn as his senior vice president and general counsel, and I was secretary general for ICSID.

Every president of the World Bank has tried to put his—I say his because I don’t think there was a woman yet—particular imprint to the World Bank, which has multiple goals. So what is your personal distinctive imprint you would like to have in your presidency?

BANGA: I’m going to fix the plumbing. (Laughter.) My belief is that presidents have come and presidents have gone, and they have done very good work on raising the eyesight of the Bank to focus on challenges that exist. And I’m trying to do that on livable planet, but I don’t want that to be my legacy. If I get one term or two terms, depending on my health, my energy, and the willingness of shareholders to keep me there, I want people to say when I’m gone that I left the Bank working much better than when I got it, because then my successor will not have to deal with what I’m dealing.

FROMAN: The woman back there near the pillar. Yeah.

Q: I’m Ella Gudwin. I’m the CEO for VisionSpring. I can help you with that eyecare problem. (Laughter.) I love the conversation about eyesight.

I have a request and a question. First, I was an intern for Bert Hofman, who is your country director for China, Mongolia, and Korea. So thank you for my current trajectory.

Also, one of the most important things that the Bank did after the pandemic to get children back into school was to fund school-based feeding programs through government packages. The school-health program is now being considered for two more inputs. This is, one, deworming.

And the second—I’m going to ask for audience participation—if you got your eyeglasses—if you are wearing eyeglasses, or you had them, particularly as a child, I would like you to take them off. So take off your eyeglasses. And if you had Lasik surgery or contact lenses, I’ll let you keep them on.

If you got glasses as a child, I want you to put them back on. You are Sustainable Development Goal number four. You are the outcome of vision resulting in increased learning outcomes. The package for school health is about to include eyeglasses. If this idea comes to your desk, particularly from the government of Nigeria, we would really like you to support it.

And then my second—my question is, when it comes to—the question is, when it comes to outcomes, what is the Bank’s thinking on performance-based funding, things like development impact bonds or other vehicles that are leaner and faster?

BANGA: So both questions—I mean, you know, I’m not going to respond about a specific funding. But for Nigeria, just to give you an example, we just signed $700 million funding for Nigeria for girls’ education, just literally a few days ago. This is an example. I am very convinced that the Nigerian government is trying to do stuff. I mean—(inaudible)—we need to help them turn the tide on what is a very difficult part of the world right now.

But anyway, your second question. The Bank has something called PforR—remember, they love acronyms—which is Performance for Results, I think, whatever that is. Basically, they pay you for doing stuff. If you deliver, you get paid with a(n) interest buydown or a fee buydown, and so on.

About 35 to 40 percent of the projects in the IBRD now have that. There’s no reason why it can’t be 50, 60 percent. Some projects don’t lend themselves to that. There is also—the Bank is doing a greater amount of lending to countries that is not project-based only, but is also based on development policy, so helping them to move policy changes in their country by funding the transition of that policy change. Again, this connects to the knowledge-bank idea. And those have also got performance parameters in there. I think people are quite seized with the idea of continuing to use that tool.

FROMAN: We’ll take our last question online.

OPERATOR: We will take our last question from Peggy Hicks.

Q: Hello. Thank you. Peggy Hicks with the Office of the High Commissioner for Human Rights in Geneva.

It’s very good to see the strong focus that you have on global public good. And we have seen that the World Bank’s most important legacies and impacts globally have been to lead the development of environmental-social standards for investment projects and independent accountability mechanisms for when—to remedy things when they go wrong. And those have been replicated widely.

While volume, speed, and efficiency of financing are important, they won’t have the desired impact without attention to project quality. So I’m wondering how environmental and social standards for projects and accountability feature in your vision for the World Bank’s evolution.

BANGA: Unchanged vision from today. I’m not planning to do anything different. They’re very much a part of what we do. The only difference is the environmental and social framework is applied to a funding of 5 million (dollars) for a girls’ school with the same rigor and excitement as it is to a hydroelectric-power project of 5 billion (dollars) in a country. That kind of strikes me as odd.

And so what I do want to do is to find a way to do a risk-based assessment, which is kind of part of the ESF framework but hasn’t been used, and, in fact, raise the standards in the process of the kind of things we need to do. There is no way that I would ever agree to reduce standards by using our money saying that we have one standard in our country but we will use a different standard in yours. Please rest assured on that.

FROMAN: Two announcements. One is that there will be a video of this posted on our website later today for those who want to watch it again and again. (Laughter.) And secondly—

BANGA: That’s cold.

FROMAN: —please join me—we’re so grateful, Ajay, not only that you came here, but you agreed to take on this immense responsibility at this stage in your life and your career. And thank you for sharing your thoughts with us today.

BANGA: Thank you. (Applause.) Thanks. (Applause.)

(END)