Still Waiting - World Bank failes to alleviate poverty

Ecologist, The, Sept, 2000 by Bruce Rich

THE FAILURE OF REFORM AT THE WORLD BANK

It says it has reformed. It says it alleviates poverty. Yet in practice it increasingly supports the rich. We expose the failure of the World Bank to fulfil its claims.

When James D Wolfensohn became President of the World Bank in June 1995, he appeared to be the institution's last, best chances. A cello player, former Olympic fencer, and Medici-like financier, he could also out perform the most self-righteous non-governmental organisations (NGOs) in his public protestations of concern for the poor. In his own words, "the real test of development can be measured not by the bureaucratic approval process, but by the smile on a child's face... We must organise ourselves... to deliver on that smile".

From his first day in office, Wolfensohn promised to revolutionise the World Bank. He pledged to change the institution's long embedded internal culture from one of loan approval -- where staff were rewarded above all for pushing money -- to a culture of "development effectiveness" and "accountability," where economic, social and environmental results in the field would be top priorities. Making the World Bank more effective in helping the poor while protecting the environment would mean putting a priority on more intensive preparation, monitoring and supervision of Bank projects, as well as a much greater willingness to halt loan disbursements to governments -- the Bank's major borrowers -- that do not comply with Bank policies and loan conditions.

However, an effect of many of Wolfensohn's changes has been to make the Bank more amenable to its official governmental and corporate clients and weaken internal mechanisms for quality control. Moreover the most rapidly growing area of Bank operations in the late 1990s has been in support for the private sector, and over the past two years, in huge, non-project emergency bail-out packages. Both priorities have even less connection to directly helping the poorest of the poor than more traditional Bank project loans. Worse, more and more evidence is coming to light that the approval culture has and is fostering systematic graft and the diversion of billions of dollars by corrupt politicians and bureaucrats in major Bank borrowers.

An institution in crisis

James Wolfensohn inherited an institution that was in crisis. Ever since the early 1980s, NGOs concerned with poverty alleviation and the environment have criticised the Bank relentlessly for financing development disasters in numerous countries. New Bank policies on environment and poverty alleviation, and increased staff did little to mute the criticism, since many Bank operations in the field appeared to go forward in violation of these policies.

The principal finding of the 1992 Independent Commission report into the Bank-financed Sardar Sarovar dam on the Narmada River in India, for example, was that the Bank and the Indian Government were culpable of "gross delinquency" in their implementation of the project, particularly concerning the forced resettlement of over 200,000 poor farmers. The Bank was found to be "more concerned to accommodate the pressures emanating from its borrowers than to guarantee implementation of its policies". The Wapenhans Report, released in 1992, confirmed that a 'culture of loan approval' was deeply embedded in senior Bank management and had caused a relentless decline in the performance and quality of Bank operations. This was also documented in countless reports of the Bank's internal Operations Evaluation Department (OED), and ignored for over a decade by the World Bank's management and Executive Board. These deep-rooted institutional problems had been brewing for the better part of two decades and were unresolved whe n Wolfensohn began his tenure.

Failure of Poverty and Environmental Assessments

The Bank under Wolfensohn responded by trying to address all of these concerns simultaneously. He and Bank management maintained that there was no inherent contradiction in what amounted to promising all things to all constituencies. He thus promised to change the Bank's internal culture to better implement policies and to deliver better developmental results on the ground, but also to streamline Bank lending procedures to shorten loan processing and to increase the volume of lending.

The flaws in this approach soon became apparent in a crucial area. In the summer of 1996, two studies by the OED revealed the massive failure of the Bank to implement effectively its key poverty alleviation and environmental policy instruments -- Poverty Assessments and Environmental Assessments (EAs).

Beginning in 1988 the Bank began to conduct Poverty Assessments of its borrowing nations to serve as a basis for better incorporating poverty reduction elements in the Bank's main country lending strategy documents, the Country Assistance Strategies (CASs). The Poverty Assessments were supposed to promote increased collaboration between the Bank and borrowers in poverty reduction, and to identify specific poverty reduction lending initiatives. The Bank's major donor governments made preparation of these Poverty Assessments, for the period 1994-96, a condition of the $18 billion funding replenishment of the International Development Association (IDA) -- the part of the World Bank that makes low interest loans to the poorest countries. Bank staff prepared a voluminous Poverty Reduction Handbook to guide staff and management in carrying out Poverty Assessments and poverty reduction lending. By December 1994, 46 Poverty Assessments had been completed.