US Treasury must share blame for World Bank's predicament Financial Times; Sep 4, 2001
From Prof Robert Hunter Wade.
Sir, How ironic that, of all people, Larry Summers, the former Clinton administration US Treasury secretary, should be "deeply troubled by the distance the (World Bank) has gone in democratic countries toward engagement with groups other than governments in designing projects" ("A world of complaint", August 28). Implicitly he joins many other critics in putting the blame for the current malaise at the World Bank at the feet of James Wolfensohn, its president. Yet if there is one agency that carries more blame than any other for the Bank's predicament, it is the US Treasury during the Clinton administrations.
The Treasury could have helped to protect the Bank against the pressures from the US Congress and the US non-governmental organisations for ever more conditions on loans and ever more subjects for the Bank to deal with. Congress and the Bank-watching NGOs know that what they require the Bank to require of its borrower governments will never be applied to the US, so their demands are unconstrained by a possible domestic downside. Then they monitor the Bank's compliance with the letter of the regulations they have imposed on it and react adversarially when they discover non-compliance, with no margin for flexibility in the application of rules.
Instead of buffering the Bank, the Treasury has mostly amplified the pressure for fear of the political criticism it would face by doing otherwise. The former Treasury secretary's lament about the Bank's engagement with groups other than governments in the borrowing countries is a case of double standards, for he very much favoured the Bank's engagement with groups other than government in the US.
This is a large part of the reason that the Bank has become like a great ship of the seas being pulled by tugboats in every direction at once. Any chief executive, however good a manager, would have found the Bank an extremely difficult organisation to manage over the past five years.
Better for the Bank, better for world development, to shift the headquarters outside the US, especially now that the European states are able to exercise some concerted leadership. And better that when Mr Wolfensohn leaves, his successor be selected by criteria that meet some minimal criteria of good governance. The choice should no longer be limited to an American, or made in cabal by the White House and the US Treasury.
Will US NGOs, which have pressed a good governance agenda on the Bank but have benefited from the present arrangements, campaign for these reforms?
Robert Hunter Wade, Professor of Political Economy, London School of Economics, Houghton Street, London WC2A 2AE
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Close the bank down and let capital markets do the job Financial Times; Sep 3, 2001
From Prof David Wall.
Sir, Prof Josef Stiglitz (Letters, August 30) mentions the "old World Bank" and the "new one". As someone who has worked as a consultant to the World Bank in each of the past five decades, I can remind him that the bank has seen many more metamorphoses than two. Remember the 1960s, when the bank used to push import substitution protectionism on the newly independent countries? And "fluffy"-ness is not new either; I am sure that I am not the only one to recall the intense debates in the bank about a "basic needs" approach in the late 1960s and early 1970s. This led to the unholy alliance with the definitely fluffy Institute of Development Studies at the University of Sussex, resulting in the publication of the fluffies' bible, Redistribution with Growth, in 1974.
Prof Stiglitz raises two old issues faced by the bank, to which he has never come up with any solution, even when he was senior vice-president for economics at the World Bank. He ends his letter by saying that "the World Bank should present the options and countries should democratically decide what they want to do". The problem is that many of the bank's borrowers - including its current main client, China - are not democracies. Neither does being a democracy guarantee a solution to the other issue: corruption. Democratic elections do not ensure government free of corruption.
In the 1980s I was asked by the bank to produce a report for the development assistant committee comparing the bank's lending experience in a selection of countries with project lending by private institutions. The expectation was that I would conclude that the bank was more effective and more efficient. I came to the opposite conclusion. The main reason was that even when the bank could be fairly confident that corruption was going to distort the implementation of a project, the lending would go ahead anyway. "Get the money out" was the main driving force at the bank in those days. The description among bank staff of conditions on lending that were supposed to ensure efficiency and effectiveness was "Christmas tree decorations": they were just for show.
After spending almost 40 years in the "development business", usually in close contact with the World Bank, I have come to the conclusion that it is now time to close it down. Private capital markets could more effectively manage much of the bank's commercially based lending programme. The remaining soft aid programmes for poorer countries would be better managed by bilateral aid agencies, where they would be subject to the true democratic process of parliamentary scrutiny.
David Wall, Centre of International Studies, University of Cambridge, 32 Trumpington Street, Cambridge CB2 1QY