JUNE 2000 VOLUME 21 NUMBER 6


EDITORIAL

 
Close Down the Masters of Reinvention:
The Case for a World Bank Shut Down
 

The masters of reinvention are at it again. In a time-tested stratagem, World Bank officials now readily admit that the Bank has committed grievous errors in the past. But now, they say, things are different.

The Bank has adopted this mea culpa strategy over and over again during the past couple decades, as we document in the sidebar. Little changes after these declarations of previous mistakes, but the acknowledgement of prior wrongdoing and failure does help deflect criticism.

Today, acknowledging the problems accompanying road building, dam construction and other mega infrastructure projects, Bank officials say they have turned their attention elsewhere. We have a renewed focus on poverty, they say.

Repeated ad nauseum, this line has served the Bank well, especially in media coverage following the April protests against the Bank and International Monetary Fund (IMF) in Washington, D.C.

Here's the problem with the Bank's new story: On the one hand, it is continuing to support an array of megaprojects with hugely destructive consequences for the environment and especially for the poor. On the other hand, much of the Bank's poverty focus is likely to make living conditions for the poor even worse.

Ask the people in Laos, or Chad, if they have seen evidence of the Bank's shift away from major infrastructure projects. In Laos, the World Bank is lending support to the Nam Theun 2 Dam, imperiling the well-being of indigenous populations, endangered species and the financial future of Laos, as Witoon Permpongsacharoen explains in an interview in this issue. In Chad and Cameroon, the Bank in early June committed itself to lending catalytic support to an oil development and pipeline project, to be carried out by ExxonMobil, the Malaysian company Petronas and Chevron, that threatens to replicate the environmental, human rights and development nightmare of Shell's oil development in the nearby Niger Delta.

"It's clear that many of their projects create poverty," says Witoon when asked about the Bank's new poverty focus. "Many Bank projects destroy people's lives. They can no longer live in their rural area."

Meanwhile, the Bank is increasingly complementing its direct support for major projects in developing countries with key insurance and financial support for foreign corporate investment in developing countries. Noting the increasing velocity of private capital flows into the Third World -- at least to selected regions and in selected sectors -- the Bank is placing increasing importance on its International Finance Corporation (IFC), as well as its Multilateral Investment Guarantee Association (MIGA), both corporate welfare enterprises. The IFC provides loans to and takes equity positions in private sector projects. It has a strange penchant for backing oil, mining, gas and major banking investments. MIGA provides political risk insurance and related to services to similar types of private investments. Big, especially foreign corporations, are the main winners from these projects, which frequently do nothing to promote real development -- or set it backwards.

What about Bank loans that are intended to address poverty? It turns out that many of these are adjustment loans, which in the past fiscal year for the first time accounted for more than half of the Bank's total fiscal commitments. According to Bank definitions, a whopping 69 percent of its adjustment loans were poverty-focused (on a cure, supposedly, not to make things worse).

The World Bank's structural adjustment loans, combined with those of the IMF, have wreaked havoc in developing countries. Sub-Saharan Africa, the region of the world most subjected to structural adjustment over the past two decades, has seen income levels plummet and poverty increase. Developing countries that have done well in recent decades have generally ignored key structural adjustment prescriptions.

Less well known, at least in the rich countries, is the effect of the Bank's sectoral adjustment lending, focused on particular industries. By and large, the purpose of these loans is to promote privatization, marketization and deregulation of the targeted sectors.

Predictably, these schemes disadvantage the poor. Bolivian labor leader Oscar Oliveres describes in an interview in this issue how Bank-encouraged marketization led to skyrocketing water rates and an appropriation of communal water rights, shifting control from the poor to a subsidiary of the U.S. company Bechtel -- until a mass movement reversed the privatization scheme.

Also in an interview in this issue, Dr. Vineeta Gupta explains how the Bank has encouraged the charging of user fees for health care, with excruciating consequences for the poor. A system which is supposed to exclude the poor from charges fails in practice -- as is typical around the world -- meaning the user fees deny the poorest access to healthcare services.

Peeling back the rhetoric and subjecting Bank operations to even a cursory examination shows that little has changed, at least for the better, at the World Bank. Most of what the Bank is doing is harmful, not because of poor project implementation -- though this is surely a serious problem -- but because the Bank is trying to do the wrong thing. Its obsession with the multinational corporate objectives of marketization, shrinking government and removing social restraints on private sector economic activity has been a disaster for the people the Bank says it is trying to help.

Some critics review the record and urge major reform at the Bank.

But while there are certainly people working at the Bank with good intentions, and one or another project sponsored by the Bank may do more good than harm, an honest look at the World Bank shows it is unsalvageable. It absorbs criticism and promises change, but continues as before. In many ways, for example, current Bank President James Wolfensohn's high-minded rhetoric about poverty echoes that of his predecessor a quarter century ago, Robert McNamara. In 1975, the Bank was churning out reports with titles like Assault on Poverty. This year, the Bank issued Voices of the Poor.

There is also a more profound reason to call for a World Bank shut down. It is time for major rethinking about the role of outside financing, and especially loans, in development.

The purpose of external financing should be to enable a country to buy goods and services from outside the country. Mozambique does not need dollars to purchase locally produced or generated goods and services, only for items from South Africa, Europe or the United States.

While there are exceptions -- medicines being a good example -- most of the basic inputs for a sustainable development program simply do not require much or any outside funding. Schools, clinics, land redistribution, clean water, ensuring food security -- these raise difficult questions about the mobilization and allocation of local resources, but they do not require outside money.

And they certainly do not require external loans. Loans must be paid back, in foreign currency. Clean water should be a top priority of national governments, but it won't generate foreign exchange. South Africa seemed to get things right when the African National Congress said in its 1994 Reconstruction and Development Program that it would accept foreign loans only for projects that would generate foreign currency. (Unfortunately, the ANC seems largely to have abandoned its commitment to the Reconstruction and Development Program.)

All of this suggests that serious consideration should be given to a diminished and more targeted role for foreign aid and a dramatically reduced role for loans from public institutions (though such a reduction would require a cancellation of the Third World debt, payment of which now depends on a constant flow of loans -- with the money coming into poor countries and going right back out as interest payments on prior loans).

In such a world, with drastically curtailed public lending, there would be little point in maintaining a World Bank. Whatever residual and beneficial functions would be left at the Bank could easily be shifted to more appropriate institutions at the United Nations and elsewhere.

WORLD BANK MEA CULPAS

For much of its 56-year history, the Bank has been in a constant process of reinvention, regularly identifying recent mistakes and failures and promising to change the way it does business in the future. But after a few rounds of these mea culpas, the story begins to wear thin. Nonetheless, the steady stream of reports from internal divisions and quasi-autonomous commissions does paint a picture of an institution with a high failure rate and a chronic inability to implement policies designed to temper the harmful effects of its project lending. Here is a sampling of conclusions from Bank reports and officials' statements in recent years:

Project Success

There has been ... a gradual but steady deterioration in portfolio performance. The share of projects with "major problems" increased from 11 percent in FY81 to 20 percent in FY91. In the ARIS (Annual Report) for FY91, 30 percent of the projects in their fourth or fifth year of implementation were reported as having major problems.  ... The number of projects judged unsatisfactory at completion increased from 15 percent of the cohort reviewed in FY81 to ... 37.5 percent of the cohort reviewed in FY91.1

There are also aspects of Bank practice that either may contribute to portfolio management problems or are insufficiently effective in resolving them. Underlying many of these aspects is the Bank's pervasive preoccupation with new lending.2

The pervasive emphasis on loan approval is not matched by equal emphasis on implementation planning and identification and assessment of major risks to project performance. Sensitivity/risk analysis is limited, and virtually no attention is given to macroeconomic risks. ... there remains a bias for complexity perhaps caused by the urge to include as many novel features as possible to secure a favorable management and Board response.3

Poverty

"We are no better off than we were in the 70s," Mr. Wolfensohn said, noting the gap between rich and poor in Latin America was the worst in the world. 4

For most countries, however, poverty is not adequately addressed in Country Assistance Strategies. Even for those countries where the Bank had completed a PA [Poverty Assessment], the results are not typically reflected in the strategy. ... Consequently, although this report concludes that the PAs have done a reasonable good job of identifying the policy and strategy options that will assist the poor to become more active participants in the growth process, these options typically are not being reflected in the Bank's assistance strategies or operations.5

I am not one of those who believe that the World Bank has changed over the last 20 years. I think the rhetoric has changed, the talk has changed, and maybe, at the margin, the lending has changed. However, most of the staff are not doing things differently than they did 20 or 30 years ago.6

The majority of loans do not address poverty directly, the likely economic impact of proposed operations on the poor, or ways to mitigate negative effects of reform. ... Direct efforts to address short-term impact on the poorest are rarely considered.7

Environment

A full 16 percent of those projects rated as environmentally 'satisfactory' by the supervision mission in fact had major problems or worse.8

[T]he three currently weakest links in the whole EA [environmental impact assessment] process are first, lack of political will to implement environmental safeguards and make hard choices between short term development and longer term environmental management. The second weak link is securing budget to implement mitigation. The third constraint is ensuring that institutional capacity is strong enough to implement mitigatory measures effectively.9

Out of 54 projects, only 9 -- or 17 percent --have any (somewhat) substantial mention of potential environmental concerns springing from the planned projects. This is a dramatic reduction from the findings of the Warford et al. Review of 1994, which found that 60 percent of the projects sampled included environmental goals or conditionalities.10

Forests

Although the [1991 Bank Forest] policy had dual objectives of conservation of tropical moist forests and tree planting to meet the basic needs of the poor, Bank influence on containing rates of deforestation of tropical moist forests has been negligible in the 20 countries with the most threatened tropical moist forests.11

The Bank has largely failed to incorporate forest concerns into its country assistance strategies.12

The Bank's logging ban does not appear to have made any difference to the extent of logging.13

The current Bank approach to forest sector adjustment lacks ... a well-established and broadly understood long-term strategy and commitment of the necessary staff resources either to carry out the necessary groundwork or to establish rapport with constituencies potentially in support of reforms.14

Resettlement:

Projects appear often not to have succeeded in reestablishing resettlers at a better or equal living standard and that unsatisfactory performance still persists on a wide scale. ... Declines in post relocation incomes are sometimes significant, in certain cases reaching as much as 40 percent for people who were poor even before their displacement.15

...[T]he core objective of resettlement planning, namely the restoration or improvement of incomes and standards of living, is still not being achieved, except in a few projects.16

The scorecard is not as good as OED had anticipated. Projects appraised in the mid-1980s still suffered from underdeveloped resettlement components.17

Another disappointment in income recovery performance is that the special incomes strategies promoted by the Bank in two countries to reinforce the faltering land-for-land programs -- strategies conceived and implemented long after appraisal -- have been uniformly ineffective."18

The other subject is the Bank's inability and apparent disinterest in providing follow-through support for resettlement operations after the Bank's "projects" have been completed. These limitations severely restrict Bank interventions on behalf of resettlers in most of its dam-building projects.19

The projects were largely oblivious to the gender dimensions of resettlement.20

1 Effective Implementation: Key to Development Impact: World Bank Portfolio Management Task Force, July 24, 1992 (Wappenhans Report)
2 Ibid
3 Ibid
4 Henry Ticks, "Latin America No Better Off Now, Says World Bank,"  in Financial Times, February 4, 2000
5 World Bank Africa Region Task Force report, May 1, 1996
6 Eugene Rotberg, World Bank treasurer, as quoted in Catherine Caufield, Masters of Illusion: the World Bank and the Poverty of Nations (New York: Henry Holt and Company, 1996), 328.
7 Social and Environmental Aspects: A Desk Review of SECALs and SALs Approved during FY98 and FY99; World Bank Environmentally and Socially Sustainable Development, May 24, 1999.
8 The Evolution of Environmental Assessment in the World Bank: from "Approval" to Results. January 1999. Environmental Management Series, World Bank.
9 Robert Goodland and Jean-Roger Mercier World Bank Environmental Department, The Evolution of Environmental Assessment in the World Bank: from "Approval" to Results, Environmental Management Services, World Bank, January 1999
10 Social and Environmental Aspects, May 24, 1999.
11 World Bank Operations Evaluation Department, Review of the World Bank's 1991 Forest Policy and Its Implementation, November 12, 1999
12 Ibid.
13 Ibid.
14 Ibid.
15 Resettlement and Development, The Bankwide Review of Projects Involving Involuntary Resettlement, 1986-1993, World Bank Environmental Department, April 8, 1994
16 World Bank Environmental Department, Report on Involuntary Resettlement for FY95, p. 1
17 Recent Experience With Involuntary Resettlement, World Bank Operations Evaluation Department, Report No. 17538, June 2, 1998.
18 Ibid.
19 Ibid.
20 Ibid.