SUMMERS SHUNS US COMMISSION'S CALLS FOR WORLD BANK REFORM.
The US Treasury yesterday rejected demands for a sweeping overhaul of the World Bank and defended the Bank's role in lending to emerging market economies, reports the Financial Times (p.5). Speaking to the US Council on Foreign Relations in New York, Treasury Secretary Lawrence Summers dismissed calls by the congressional advisory commission [chaired by economics professor Allan Meltzer] earlier this month that the development banks should phase out lending to countries with access to private finance and that the Bank pull back from Asia and Latin America altogether, leaving those areas to their regional development banks.
"We categorically reject the idea that these countries should not be in a position to obtain the additional finance, expertise, and insurance against instability that access to [development bank] programs can provide," Summers is quoted as saying. "But we equally recognize that the work of the [banks] and their private sector lending arms in such economies needs to be more tightly focused on adding value that the private markets cannot."
Backing a more modest series of proposals, Summers said the banks had no role in lending towards large-scale infrastructure projects and industries such as oil and telecommunications, where private sector finance is widely available. Instead, the banks should concentrate on key public investments such as health and education, and lending to boost investor confidence after financial crises.
Summers mounted a robust defense of US support for the World Bank, arguing that emerging markets were home to the majority of the world's poorest people. "If we are serious about preventing a global race to the bottom, we must be serious about helping those at the bottom to rise up," he said. "And US support for strong and effective international development institutions can and must play a crucial role in our efforts to achieve this."
Summers said the Bank should also concentrate on promoting science and public health, encouraging research on diseases such as AIDS and malaria, as well as lending towards basic healthcare. His recommendations for World Bank reform follow his speech in December which concentrated on reforms for the IMF, the story notes.
Also reporting, Reuters adds that Summers called for the Bank to make more selective loans and charge more interest to better-off nations such as China and Brazil, zeroing in on reducing world poverty and paying particular attention to lending to countries that are free from corruption, while the Fund should address macro-economic issues.
There was too much bureaucracy between the IMF and the World Bank, he added-an issue the institutions needed to confront. "The greatest shortage in the poorest countries is of institutional capacity," he said. "And frankly, too much of that scarce capacity is absorbed in dealing with the international development institutions." To that end, the Bank and the Fund needed to have better targets and benchmarks, including more disbursement of loans in stages and more frequent formal reviews, he said.
Separately, the Washington Post (p. E3) reports World Bank spokeswoman Caroline Anstey responded positively to the speech. "We welcome its reaffirmation of our core role in poverty reduction [and] its support of the Bank's comprehensive development framework," she said.
The Bank also took comfort from Summers's rejection of the Meltzer commission's recent recommendation that the Bank essentially withdraw altogether from middle-income countries of the world. Summers would keep the Bank in those countries, but with a more focused lending strategy.
Under President James Wolfensohn, now nearing the five-year mark in his tenure, the World Bank has made much of cutting bureaucracy and focusing its loans with an eye to better results. Many outsiders, however, Summers included, continue to see the Bank as trying to do too many things at once. The Washington Times (p. B10) also reports.
Dow Jones, Agence France-Presse, and Neue Zürcher Zeitung (p.17) also report on Summers' remarks, while the Frankfurter Allgemeine Zeitung (Germany, p.17) also reports on the recommendations of the Meltzer commission for the reform of the IMF and the World Bank.
Meanwhile, in a Journal of Commerce op-ed (p. 7) written by Christopher Lord, editor-in-chief of "Perspectives, the Central European Review of International Affairs," notes that it is remarkable that the Meltzer report's opinion is not shared by the Democrats on the panel. What this suggests is that the report is another example of a disturbing American isolationism that doesn't want to pay for the UN or waste American money on foreign aid. But the fact is that both the Bank and Fund have been run throughout their existence according to American ideas, even if their staffs are, on the face of it, international.
A Republican Congress might think it can attack the Clinton administration by sniping at these supposedly international organizations, continues Lord. But do they really want to attack the US-sponsored international financial system, of which the IMF and the World Bank are now an integral part? "I really don't believe so," Lord adds.
Further, in a Washington Times op-ed (p. A16) written by Brett Schaefer, Jay Kingham fellow in international regulatory affairs, and Ariel Cohen, a research fellow in Russian and Eurasian studies, Heritage Foundation's Davis International Studies Institute entitled: "Curbing Loans To The Corrupt," notes that lawmakers should welcome the report's call for fundamental reform of the international lending system. While working toward this overall goal, however, Congress should take immediate action to prevent loans from the IMF and the World Bank from flowing to corrupt and inefficient foreign governments Schaefer and Cohen add.
The news comes as EBRD President Horst Köhler, nominated by the EU governments to be the new managing director of the IMF, says in an interview with the Tagesspiegel (Germany) that there has to be more efficient division of labor between the Bank and the Fund.