COMMENT & ANALYSIS: Developing crisis: The World Bank's declining influence is blamed by many on the failings of its president
By STEPHEN FIDLER
If the World Bank were a private company, the 1990s should have been a decade of record profits and the institution a growth stock. With the decline of communism, governments worldwide became disillusioned with the public sector as an engine of growth and embraced market-based capitalism. From Latin America to eastern Europe, political leaders slashed barriers to trade, privatised state-owned enterprises and deregulated markets. Governments beat a path to the World Bank's door, seeking out its unequalled expertise in the field of development and its money. The bank's potential for influencing global events appeared to be on the verge of an unprecedented expansion.
It did not happen. Instead, the World Bank has found itself in crisis, its power severely diminished and its global role under attack from across the political spectrum. Critics now speak freely of closing the institution altogether, or at least of radically shrinking it. Poised for spectacular growth 10 years ago, the World Bank is now groping for relevance precisely when profound change in the global economy should have placed it centre stage.
Under these conditions, what would a private company do? Easy: fire the chief executive officer. But not the World Bank. Its president, James D. Wolfensohn, was reappointed for a second, five-year term, to June 2005.
Yet critics, inside and outside the bank, accuse Mr Wolfensohn of presiding over a tragic deterioration of the world's premier development institution, which they describe as rudderless and lacking strategic direction. They blame Mr Wolfensohn's personal failings: a phenomenal temper, a constant need for approval, and an inability to resist the latest development fad. They allege that Mr Wolfensohn's attempts to make the bank friendlier to myriad outside constituencies - in particular, to non-governmental organisations - have made the institution softheaded, less analytical, and so less relevant. They also say that Mr Wolfensohn's poor stewardship and lack of focus have weakened the bank's internal organ-isation.
Sebastian Edwards, a UCLA professor and former World Bank senior economist, points out that the high volume of private capital flowing to developing nations has seriously diminished the importance of the institution. But, he says, Mr Wolfensohn's actions have accelerated the trend. "It's happened faster because of him," Prof Edwards argues. "What Wolfensohn has done has been incredibly frivolous."
In the six years since his appointment, Mr Wolfensohn has completely overhauled the bank. He has appointed 36 of 38 vice-presidents, while three out of its five managing directors were brought in from outside. Bank documents show that about a quarter of its 10,000 employees have joined in the past three years.
But many are critical of the internal changes. "He has been unwilling or unable to set up a management structure beneath him to compensate for the fact that he can't run the institution on a day-to-day basis," says a former senior US government official. Others criticise Mr Wolfensohn for promoting favourites and ignoring World Bank regulations when they do not suit him.
Mr Wolfensohn rejects the complaint that he is ill-suited to the job but accepts that "it is fair to say that I'm much better on the outside than on the inside."
"He's a relationship guy," says one World Bank official. "He has enormous credibility with influential and powerful people around the world." Another official commends Mr Wolfensohn for having done a "fabulous job communicating with the outside constituencies: the governments of the industrialised countries and the NGOs."
But this kinder, gentler image has exacted a heavy price. Critics charge that, under pressure from NGOs and other interest groups, the World Bank has surrender its intellectual integrity, rushing to embrace the latest fashions in development thinking. No initiative embodies this trend better than Mr Wolfensohn's "Comprehensive Development Framework", launched in January 1999 - a "holistic, long-term and country-owned approach that focuses on building stronger participation and partnerships to reduce poverty".
Critics charge that the CDF represents a capitulation to NGOs. Many borrowing governments complain that it is inappropriate for the World Bank to anoint non-elected, self-styled representatives of civil society to interfere in bank programmes. "I am deeply troubled by the distance the bank has gone in democratic countries toward engagement with groups other than governments in designing projects," lamented Larry Summers, the former US Treasury secretary, at a private retreat of bank country directors in May. Mr Summers, also the former chief economist of the World Bank, said there was little evidence that giving weight to local communities resulted in improved decision-making. "I am concerned," he said, "that the move toward empowerment rather than an economic approach is standing in some ways for a reduced emphasis on the analytic element in the bank's work. If that is so, it seems to be a troubling development."
Many think that Mr Wolfensohn's positioning of the bank has accentuated a lack of focus at the institution, leaving staff unsure about priorities. In a speech last October to the World Bank's board, Valeriano Garcia, the outgoing executive director for Argentina, captured this widely held sentiment: "The strategic thinking of the bank has been muddled by too many ad hoc initiatives . . . We really need to be more focused."
These initiatives include: the World Faiths and Development Dialogue, which brings together leaders of various religious denominations from around the world with the bank and other development institutions; support for cultural projects in the Balkans; and the Global Development Gateway, an attempt to encourage "new economy" ideas in developing countries.
Some of Mr Wolfensohn's ideas have received praise. For instance, his efforts to decentralise the institution and push a large minority of staff into the field have worked well, even though they have multiplied the bank's management difficulties. Others initiatives - such as a plan to create an international risk management organisation - have sputtered into life and then faded.
Mr Wolfensohn defends the World Bank's broader agenda. He says the institution is applying much more elaborate and expensive safeguards, for example, to make sure that environmental and resettlement guidelines are followed. The bank has impressed on its client governments the importance of such issues as the environment, gender equality and avoiding corruption. It has been asked to provide debt forgiveness for the poorest countries and more detailed poverty reduction strategies.
Overall, however, Mr Wolfensohn maintains that the challenges of global development require this more variegated approach. "They're saying (that) because I'm interested in religion and culture it's a perfect example of my idiotic extension in thinking, as though they are driving forces in the institution that cause all the stress, which is nonsense. The simple fact is that doing development has become a lot more difficult."
Ultimately, a good part of the responsibility for the World Bank's growing agenda and apparent lack of focus lies with its shareholders in rich countries. "As its own bilateral aid programme has shrunk, the US has found the World Bank an especially useful instrument for projecting its influence in developing countries. The bank is a source of funds to be offered to US friends or denied to US enemies," argues Robert Wade of the Institute for Advanced Study in Berlin.
Although no other member states come close to matching US power over the bank, all its influential owners - Britain, France, Germany and others - have borrowing governments whose interests they purport to sponsor, as well as key issues (such as the environment) that are viewed as important by their electorates. Otherwise, accountability and scrutiny from donor governments are uneven at best and non-existent at worst. Meanwhile, the few powerful borrowing nations that could exert some influence are afraid to voice their concerns lest they lose access to bank finance.
This pressure on the bank is overlaid on what some consider another source of confusion: the idea that neither the World Bank nor others have the right recipe for development. The market-oriented economic reforms introduced over the past decade throughout the developing world have brought some recovery of economic growth but nowhere near what was expected.
This frustration reaches right inside the bank. The International Monetary Fund and World Bank have over the past decade given 10 or more loans each, with conditions attached, to 36 poor countries. But as William Easterly, one of the bank's most respected economists, has pointed out: "The growth rate of income per person of the typical member of this group during the past two decades was zero." (FT, Personal View, July 4.)
Mr Summers argues that the institution is torn between appeasing NGOs and other constituents and the bank's fundamental development objectives. "If you are a development organisation, you really cannot be in bad grace with the principal carriers of moral energy around development," he said at the country retreat in May.
"I think it would be a great tragedy in terms of the bank's potential contribution to reducing global poverty," he added, "if, in the name of demonstrating its compassion and moral energy, (the bank) were to lose sight of the rigorous analytic basis and emphasis on supporting market forces that have allowed the bank to make such a great contribution to global poverty reduction efforts over these past 50 years."
To Mr Wolfensohn's critics, he may have already moved too far in this direction. Mr Wolfensohn himself makes a plea for others to do what many say he is not able to do himself - separate the institution from its president. "Put me aside for the moment and say I'm useless . . . egocentric, insecure, all the things you want to say - but don't damage the institution because you want to damage me . . . This is too good an institution to damage in that way. Don't confuse the two, because that's not doing anybody any good."
A longer version of this article appears in Foreign Policy magazine www.foreignpolicy.com