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USA: Wolfensohn Responds - Limiting the World Bank

by James D. WolfensohnWashington Post
March 13th, 2000

During the past few days a good deal of coverage has been focused on the Meltzer Commission Report on the International Financial Institutions, and what it might mean for the World Bank. Let me take this opportunity to lay out some real concerns that we at the bank have, and also to set the record straight.

We are, of course, pleased that the issue of poverty reduction should be headline news. We share the commission's concern that more must be done by all the players in the fight against poverty, and we applaud all who broach this difficult subject. We also welcome the commission's call for debt relief, and we hope that funding support from Congress will follow it. This is crucial.

We nevertheless believe that a number of the commission's proposals are based on a fundamental misreading of the development challenges we face today. Poor people in developing countries will be the losers if these proposals are implemented.

If the World Bank were to withdraw entirely from Asia and from Latin America; if it were to stop lending to countries with a per capita income above $4,000 a year, it would cut out the marginalized, the poorest, the excluded who live in these countries.

Private-sector investors will not fund the improvements in health, education and other essential public services that people need to pull themselves out of poverty. Moreover, if the World Bank were to stop lending for anti-corruption work, good governance, regulatory reform and institution building, it would cease to create the kind of enabling environment that can attract private funds to countries and areas that currently receive little. No other organization is doing this work on a global scale.

A critical strength of the World Bank is its ability to learn from developing countries in all regions of the world and to reflect those lessons in its policy advice and operations and in its global research programs. Under the commission's proposal to devolve country programs to regional development banks, our clients would be limited to countries in Africa, the Middle East, Europe and the former Soviet Union. This would undermine the World Bank's global character at the very time that the demands of globalization are pointing in the opposite direction.

The loss of the bank's cross-regional perspective and the synergies it generates would hurt everyone--especially the poor of the developing world. But the burden would fall heaviest on the 2.2 billion people living on less than $2 per day in Asia and Latin America, since the bank would no longer be involved in country programs there. We would need to withdraw our support for maternal health in Bangladesh, AIDS programs in India, legal reform in Thailand, social security reform in Brazil, financial sector reform in Mexico and so on.

Reflecting other commission recommendations, we also would need to withdraw from important country programs in Europe, such as Poland, where we have supported the creation of market-friendly legal and regulatory frameworks and financial sector and health care reforms.

Nor do the commission's recommendations seem to be supported by sound analysis and careful use of statistics. The report states that 70 percent of the World Bank's non-concessional lending goes to 11 countries that have substantial access to capital markets, but it ignores the fact that these countries are home to more than 60 percent of the poor people in the developing world. The report's authors also fault the bank for neglecting its own insight that aid can be effective only in countries with good policies. But in 1997-99, the best-performing countries annually received almost five times more International Development Association resources per capita than poor performers.

We have changed, and we are changing. By the late 1990s, the financial sector and the social sectors--such as education and health--absorbed about a quarter each of total annual World Bank lending, up from around 5 percent each during the early 1980s. None of this is reflected in the commission's report. Nor is the fact that our operational performance has improved markedly over the past few years. Instead, the report bases much of its argument on a distorted use of statistics on bank effectiveness.

We welcome debate. But we need to test the commission's recommendations against the challenges that we face on the ground every day. Unfortunately, against this measure I believe that many of them significantly miss the mark.

The writer is president of the World Bank.





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