The demands of creditor nations and aid agencies are crippling the institution. Debtor nations can save it, says Robert Wade Published: February 14 2001 20:06GMT | Last Updated: February 14 2001 20:10GMT Many have laid the blame for the malaise at the World Bank squarely with James Wolfensohn, its president. There is no doubt Mr Wolfensohn is challenged in the management department. The future of the Bank would be brighter if he were to leave or to limit his role to external relations, his forte. But there is also no doubt that the Bank's future would be bleak, whoever the president was. Lending has collapsed to the level of the early 1980s - apart from lending by the International Development Agency, the soft-loan facility. Some of the fall is cyclical but more of it looks to be long-term. Staff in technical sectors such as agriculture, irrigation, energy and infrastructure are leaving in droves. The matrix organisational structure put in place in 1997, wonderful on paper, is a nightmare, particularly because it imposes high costs of negotiating agreements about everything short of pencils. As a result, the new, "client-focused" Bank spends more of its time on internal processing and less on what it is good at - working with clients. Non-stop waves of redundancies compound staff anger. One solution is to close the Bank down. This is favoured by those who say that private capital markets can provide enough development finance without public intervention and private consulting firms can provide enough development advice. Nonsense. About 70 per cent of private capital flows to developing countries go to only 10 of them and are subject to large surges in and out. Private consulting firms have no interest in helping clients to follow the Korean motto: "We learn things only once." The world needs multilateral development banks as a partial offset to failure in both capital markets and consultancy markets. They pool the risk of lending to developing countries and link money with advice based on experience of what works. And the world needs a world bank, one that operates across the developing world and can tackle global problems such as ocean pollution, atmospheric degradation and nuclear waste. The problem of the World Bank starts with the logo. "World" confers dignity, prestige and a presumption of leadership. But when the mandate is as broad as "development" and "poverty reduction" it also invites any entity striving for influence to target the Bank to get its demands across. Like it or not, the Bank has had to open itself up to all kinds of aid agencies and pressure groups, mainly those based in the creditor countries, particularly in the US. They can affect the Bank's lending resources and its survival by affecting the willingness of the governments of creditor countries to underwrite its capital base and to pledge funds for its IDA affiliate. Creditor countries, especially the US, therefore have influence in the Bank way beyond their majority share of votes in the governing body. This has made the Bank both unmanageable and uncompetitive. The agendas to which it must respond are often mutually inconsistent - the US Treasury and State Department say the Bank must make a massive adjustment loan to Indonesia; many agencies delegitimise the Bank for lending to a corrupt and repressive government. The external groups do not have to resolve the inconsistencies among themselves, or take responsibility. Instead, they happily insist the Bank make borrowers comply with standards of resettlement, indigenous peoples, environmental assessments and procurement that are higher than in leading industrialised countries. Why not? The need to manage the inconsistencies makes hypocrisy a way of life in the Bank - saying different things to different audiences and making declarations of intent that cannot possibly be carried out. But hypocrisy has its limits. The standards that the creditor countries require the Bank to insist upon in its projects add greatly to the costs of borrowing from the Bank compared with other sources. Worse, the requirements in terms of project preparation can often be met only by international consultants flown in for the task, so learning does not take place locally. Borrowing governments are increasingly saying: "No, thanks." And when agencies discover less than 100 per cent compliance in some part of the Bank's portfolio, they stand ready to censure the Bank and demand cuts in its capital base or soft-loan funds. The circle is vicious. The borrowing governments and their representatives on the board of the Bank have to become more active in governing the governance problem. They are meant to be the primary beneficiaries of World Bank activities, yet they have for 50 years allowed creditor governments to set the rules and policies. They can do much more than at present to co-ordinate their actions and now that the survival of the Bank is at stake they have every incentive to do so. The writer is professor of political economy and development at the London School of Economics and fellow of the Institute for Advanced Study, Berlin from FT.com _______________________________________________ CrashList website: http://website.lineone.net/~resource_base
