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It's been a tumultuous two-year tenure for the CFO of the world's largest development-lending institution.
Jason Karaian, CFO.com | Europe
November 9, 2007
"We are not a bank in the common sense," reads the corporate brochure. That's putting it mildly. The World Bank, established in 1944, is a sprawling lending institution, made up of two separate organisations and owned by 185 national governments. Under the World Bank umbrella, the International Bank for Reconstruction and Development (IBRD) raises funds in the capital markets to provide loans to middle-income countries, while the International Development Association (IDA) relies on contributions from its wealthier shareholders to fund interest-free loans and grants to the world's poorest countries.
More than 10,000 employees are enlisted to the Washington, DC-based institution's poverty-fighting mission. Among them is Vincenzo La Via, its CFO, who oversees the group's $25 billion in commitments. The formative years of La Via's career were spent at the World Bank when he was a member of its young professionals programme in the late 1980s and early 1990s. He then worked at the Italian Treasury Ministry and Intesa, Italy's largest bank, where he rose to CFO before rejoining the World Bank nearly two years ago.
His second stint at the bank has come during tumultuous times. In June, World Bank president Paul Wolfowitz—a former US deputy secretary of defence—resigned under a cloud of alleged ethical violations after two years at the helm. Soon after Robert Zoellick, a former US trade negotiator and senior executive at Goldman Sachs, took over for Wolfowitz, a damaging report into the institution's lax anti-corruption efforts was issued by a panel of investigators led by Paul Volcker, former chairman of the US Federal Reserve.
At the best of times, the World Bank faces a broad spectrum of criticism, from those who oppose its favourable loans to countries like China and India, which generally have easy access to finance from other sources, to members of the anti-globalisation lobby, who rail against the group's support for policies that promote free trade. Despite the additional scrutiny that the Wolfowitz fallout now brings, the World Bank isn't standing still. It recently pledged to more than double the amount it contributes to the IDA from internally generated income. The pledge is intended to spur equally generous commitments from donor countries.
Further measures to advance the group's poverty reduction mission, and reform governance of the bank itself, will surely keep La Via busy in the years ahead. So will his boss. "By nature, I'm an impatient person," Zoellick noted at an October press conference. "I like to move things quickly."
What made you want to become the CFO of the World Bank?
I was drawn to this position because it is a unique one in so many ways. The World Bank has been a player in financial markets for around 60 years and has also been involved for decades in what we now call emerging markets. With globalisation, one can therefore see the world changing from a perspective that one could not get in the private sector.
What convinced you to leave the private sector?
After working for a long time in the private sector, this job also had the appeal of allowing me to contribute to the cause of development. The private sector has a narrower perspective, focusing on the need to make a profit. Working at the World Bank, one has the hope of being able to say that one helped to improve the world, in however small a way.
What lessons did you learn as finance chief at Intesa that you’re now able to apply at the World Bank?
Banca Intesa is somewhat similar to the World Bank in that it is also a complex institution with many different cultures. One of the main things I learned was how to integrate diverse groups as I was there during a major merger. Here at the Bank there are similar challenges because the organisation is so decentralised and the environment is changing rapidly, which means we need to change too in order to continue serving clients effectively.
Conversely, what from your early years at the World Bank and Italian treasury came in use when you later moved into the private sector?
My early years at the World Bank and my time at the Italian Treasury have put me in the role of both an investor and a borrower. Generally, most people are either one or the other. So I'm lucky to have this dual perspective. I joined the World Bank in the 1980s and gained a great breadth of experience by seeing financial problems from a global perspective. I worked at the Bank during the Latin American debt crisis and the Wall Street crash of 1987. For part of the time at the Bank, I was a trader in the treasury and so I learned to react quickly to market developments.
My time at the Italian Treasury gave me the experience of running a big group of people without the forms of leverage so common in the private sector. I could not hire, fire or hand out big bonuses. So I had to raise the department's performance through motivation. I was given a lot of leeway there by my bosses, so I could set challenges that motivated my co-workers. We were able to reshape the primary and secondary debt markets and this restored confidence among investors and lowered the borrowing costs for the country.
What are your priorities now?
As CFO, my top priority is to ensure the institution remains financially sound while allocating capital as effectively as possible in order to support our mission of reducing poverty. In doing so, I have to strike the right balance between running the finances prudently while not sacrificing innovation that could help our shareholders meet their development objectives. The World Bank is a very financially sound institution. My goal is that it will always remain so.
Another priority is to ensure we have consistency in the financial policies, accounting and fiduciary standards across the different institutions that comprise the World Bank Group. Other priorities include keeping a tight rein on the budget to ensure resources are allocated in the most efficient way. On the funding side, we need to continue to deliver a competitive cost of funding. On the asset side, we must maintain our prudent policies. We will continue to carefully monitor our credit risks.
The Bank claims that it has achieved a "global reputation as a prudent and innovative borrower, investor and risk manager." Why should the Bank be considered "prudent" and "innovative"?
The International Bank for Reconstruction and Development, as the World Bank is known in the capital markets, has had a triple-A rating for about 50 years. This consistent rating reflects the backing from our shareholder governments, our strong capital base and conservative financial policies. It also reflects the fact that we are seen as a preferred creditor with sovereign borrowers.
Our prudent policies have also paid off for taxpayers. Each shareholder pays in only a small portion of their subscribed capital at the time they become a member. With that and the reserves it has accumulated, IBRD raises funds in the capital markets and provides financial services and expertise to its member countries, without asking for additional funds. We also generate an operating income of around $1 billion a year. This pays for further development priorities, including grants to the poorest countries.
In the 60 years that IBRD has borrowed on the capital markets, it has been very innovative. This includes the world's first currency swap in 1981, the first global bond in 1989 and more recently the first supranational bond in the Romanian domestic market in 2006 and the first global bond in Turkish lira in 2007. The group's private sector arm, the International Finance Corporation, was the first non-resident entity to borrow in domestic capital markets in China and the West African CFA region. It has also pioneered direct local currency financing through derivatives, which has been used to provide loans in 19 emerging-market currencies, and has deployed structured finance products, such as partial credit guarantees and risk sharing instruments, to mobilise resources especially for small and medium-sized companies.
Did anything about your role, or the role of the finance department in general, change after the recent change in Bank President?
The new president, Bob Zoellick, comes from Wall Street and has also worked at the US Treasury. With this considerable financial expertise, he sets high standards. He encourages the innovations that will enable the finance function of the World Bank to make it an even more effective partner for clients. We are all very much looking forward to working with him over the next few years to strive towards that goal.