President Trump campaigned on his belief that America should put its own needs ahead of buoying other nations through cooperative efforts like the World Bank.
In David Malpass, the 62-year-old Treasury undersecretary he nominated Wednesday to lead the global lender and policy adviser, the White House found a government veteran who not only shares that viewpoint but also has been vocal about it.
“I am certain there could be no better candidate to lead the World Bank than David,” Trump said at a Wednesday afternoon press conference. “My administration has made it a top priority to ensure that U.S. taxpayer dollars are spent effectively and wisely,” he noted, and “David has been a strong advocate for accountability at the World Bank for a long time.”
While Malpass told a House of Representatives subcommittee in late 2017 that the bank was oversized and inefficient, a senior administration official noted earlier Wednesday that he also helped with a capital increase of $13 billion for the organization.
He “has been for his entire career a happy warrior and champion of pro-growth policies,” the official said Wednesday. “He is going to be a pro-growth reformer at the World Bank.”
Malpass, who would succeed President Barack Obama’s appointee, Jim Yong Kim, was chosen after a search led by Treasury Secretary Steven Mnuchin and Ivanka Trump, the president’s daughter, the official said.
His selection is likely to generate a mixed reaction among the 188 other nations that are shareholders in the bank, which was originally formed by the U.S. and its allies near the end of World War II. While the U.S., as the largest investor, has typically chosen the president, that privilege isn’t guaranteed.
Malpass “is a Trump loyalist who has committed economic malpractice on a wide range of topics,” said Justin Sandefur, an economic fellow at the nonprofit Center for Global Development. “The question now is whether other nations represented on the World Bank’s board of governors will let the Trump administration undermine a key global institution. They have a choice. It’s a simple majority vote, the U.S. has no veto in this election and there are many better candidates.”
Funded by investments from each of the member countries, the World Bank made its first loan to France in 1947 and focused on funding dams, electrical grids, and highways in developing countries in Latin America and Africa during the 1950s and 1960s. Its lending commitments have risen from $710 million in 1958 to $47.1 billion in 2018, according to organization records.
In Malpass’ current role as Treasury undersecretary for international affairs, he advocated a variety of changes at the organization, once recommending that it begin relying on its own money to fund development loans and halt outlays to China.
Beijing “has plenty of resources,” he argued in a November 2017 forum hosted by the Council on Foreign Relations. “It doesn’t make sense to have money borrowed in the U.S., using the U.S. government guarantee, going into lending in China for a country that’s got other resources and access to capital markets.”
On Wednesday, Trump praised Malpass’ work with the bank while at Treasury. “He has fought to ensure financing is focused on the places and projects that truly need assistance, including people that live in extreme poverty,” the president said.
Malpass previously worked in the administrations of both Ronald Reagan and George H.W. Bush and was chief economist for the investment bank Bear Stearns, where he failed to foresee the financial crisis that led to the firm’s near-failure before its rescue by JPMorgan Chase and the Federal Reserve Bank of New York.
“The hyperventilation over the coming U.S. economic slowdown matches the aftermath of Hurricane Katrina,” he argued in a Wall Street Journal op-ed just seven months before Bear’s takeover. “Housing and debt markets are not that big a part of the U.S. economy, or of job creation. It’s more likely the economy is sturdy and will grow solidly in coming months, and perhaps years.”
Instead, the gradual collapse of a bubble in the nearly $15 trillion U.S. mortgage market left widely held securities tied to home loans impossible to value, freezing credit markets and leading not only to the near-failure of Bear but the collapse of investment bank Lehman Brothers, the largest bankruptcy in U.S. history at the time.
Unemployment spiked at 10 percent in the recession surrounding those events, and the U.S. government was forced to pour hundreds of billions of dollars into bailouts to shore up the financial system while the Federal Reserve cut interest rates to nearly zero.
