After an agreement on a major World Bank Group reform package advocated for by Congresswoman Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, and memorialized in a letter from World Bank President David Malpass to Treasury Secretary Steven Mnuchin, Chairwoman Waters signaled her support to authorize the Secretary of Treasury to vote in favor of a $5.5 billion capital increase for the Bank’s private sector arm, the International Finance Corporation (IFC).

The authorization was included in the massive $2 trillion coronavirus emergency spending bill that Congress passed in March and President Trump signed into law.

“President Malpass and IFC CEO Philippe Le Houérou deserve enormous credit for recognizing the importance of, and committing to, these significant reforms, which will make the World Bank Group more effective in its efforts to help low-income and vulnerable countries deal with the devastating consequences of the COVID-19 pandemic,” said Chairwoman Waters. “I also applaud President Malpass for a major labor market and worker protection reform achieved during discussions in December, which I welcome as a sign that under his leadership, the Bank will give greater attention to issues of equity and reject actions that increase the vulnerability of workers and households.”

Although the U.S. is not contributing any money to the IFC’s new injection of capital, the U.S. has veto power over IFC capital increases, so the agreement could not move forward without Congressional approval, and in particular, without the support of the House Financial Services Committee, which has jurisdiction over U.S. participation in the international financial institutions.

In a letter[1] from World Bank Group President David Malpass to Treasury Secretary Mnuchin, dated March 20, 2020, which outlined the reform measures President Malpass committed to undertake, Malpass stated, “I am writing to respond to requests that the United States has made with respect to strengthening the International Finance Corporation’s (IFC) environment and social risk management, transparency and accountability. We appreciate the dialogue between your government and IFC on these important matters that will increase IFC’s effectiveness and accountability and secure the U.S.’s support for the IFC Capital Increase and related resolutions.”

The next day, Secretary Mnuchin transmitted the Malpass letter to Chairwoman Waters, noting that, “With your leadership, we have negotiated a new package of reform commitments with IFC management that will strengthen the institution and ensure that it uses its resources in ways that benefit the individuals most in need during this crisis” a reference to the recent announcement by President Malpass of an IFC-led multi-billion COVID-19 response package.

The major reform commitments include:

• greater transparency with respect to the IFC’s financial intermediary portfolio;
  
• an audit of IFC’s current investments in Myanmar and enhanced due diligence and human rights impact assessments going forward for its riskiest investments in the country;
  
• greater transparency with respect to IDA subsidies the IFC gives to private firms, working to ensure that more subsidies are awarded on a competitive basis and capping the level of subsidy to projects that are not competitively bid;
  
• an official freeze of any direct or indirect investments in private for-profit K-12 schools, followed by an inclusive public consultation process to determine whether there are any exceptional circumstances under which future IFC investments in such schools could be made;
  
• disclosure and public participation in the upcoming review of the IFC’s accountability mechanism, the Compliance Advisor/Ombudsman (CAO) and in the selection of the next head of the CAO; and
  
• the appointment of an independent external review of the “total tax and contribution rate” sub-indicator of the Bank’s annual Doing Business report that will provide a public report to the Board on the degree to which this indicator is consistent with the development objectives of the World Bank. 

These reforms follow a major labor market and worker protection reform, achieved after discussions with the House Financial Services Committee in December, regarding the Bank’s plans for a controversial anti-worker-rights indicator that had been previously suspended from the Bank’s annual country-ranking exercise called the Doing Business report.

Chairwoman Waters has long expressed concerns over the report’s “Employing Workers” Indicator (EWI), which was used to advance a one-sided deregulatory view of labor market policy and encourage governments to weaken worker protections with the purported aim of attracting foreign investment. Under pressure, in 2010, the Bank suspended the controversial EWI. Although the report no longer scores or ranks countries based on their labor market policies, the authors of the Doing Business report continue to publish the underlying labor market data collected for each country.

Over the past decade, the inclusion of this labor market regulation data increasingly allowed an anti-worker bias to re-emerge in the narratives presented by the report.

In a letter dated December 16, 2019, President Malpass acknowledged to Secretary Mnuchin that while the Bank had been considering reintroducing the labor indicator back into the Doing Business report’s rankings, “we will not go forward—we will not include the labor indicator in the rankings.” Importantly, Malpass added, “In addition, we will no longer collect labor data for, or include such data in, the Doing Business data set.”

This decision will effectively put the issue of labor market policy outside the purview of the “Doing Business” report. Going forward, the Committee will continue to press the Bank to adopt a comprehensive approach to labor market policy that recognizes that countries can have regulations to protect workers while maintaining market efficiency as well as incentives to create jobs.

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[1] The Committee has redacted two sentences in this letter in order to protect commercially sensitive information in one case, and non-public personnel information in the other.

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