The World Bank is not financially sound

USA Today (Society for the Advancement of Education), Sept, 1995 by Patricia Adams

The bank's failure to live by its own creed of economic efficiency became front-page news. Bank projects might be reputed to ravage the Earth's environment, but the public believed their economics justified them. For the first time, a comprehensive study of World Bank projects had been conducted? and by the bank's own analysis, here was evidence that its loans contributed not to the wealth of nations. but to their impoverishment.

A suspect portfolio

Since impoverished national make poor credit risks. this renders the World Bank's portfolio suspect. The state of the bank's own affairs can not be attributed to the impoverishment of its clientele its financial disarray was entirely of its own making.

The technique of paying off old debts with new borrowings, or otherwise obfuscating puffed-up asset values. Generally enjoys a limited life. Nevertheless, ils attraction may be irresistible. As long as new money satisfies old obligations a lenders operations will appear financially solid. The World Bank is well-schooled in the technique.

When Third World countries began to default on their loans in the early 1980s, the World Bank began providing what are known an "adjustment loans." Third World countries receive those loans to pay for imports in order to tree other monies to repay debts. The adjustment money thus makes a round trip from the World Bank in Washington to a Third World country and then back to the West, where much of it repays various creditors. Those loans now represent approximately one-fifth of the World Bank's portfolio.

During Brazil's 1986 debt crisis, the IBRD lent it $500,000,000, purportedly to adjust its electric power sector. According to leaked minutes of an executive board meeting, though, one executive director was distressed that the loan "oozed of balance of payments support."

To stem the Third World's debt crisis, the U.S. enlisted the World Bank and the International Monetary Fund (IMF) to administer its debt-workout plans, relieving commercial banks of the need to resolve privately their delinquent debts with Third World borrowers. From 1985 to 1988, under Secretary of the U.S. Treasury James A. Baker's plan to replace private with public debt, commercial banks were repaid $17,000,000,000 more per year from the Third World than they lent, while government sources (including the World Bank, the IMF, and rich governments) paid out $700,000,000 per year more than they received.

To cover the private-sector bailout, IBRD shareholders contributed $75,000,000,00 the IBRD's largest ever general capital increase--in 1988. Debt expert Jeffrey Sachs, an adviser to Third World governments and international financial agencies, called the increase an explicit taxpayer contribution" to commercial bank interest payments. Although the World Bank had not written off outstanding loans, Sachs stated that "so tar the oificial creditors (i.e., the taxpayers) have not suffered explicit losses, but rather losses that are implicit in new loans to uncreditworthy borrowers."