Still Waiting - World Bank failes to alleviate poverty

Ecologist, The, Sept, 2000 by Bruce Rich

One of the more revealing analyses in the report describes how the culture of approval and perverse Bank career incentives that punish staff who contradict the party line led to disastrous consequences in lending for the financial sector. As the Indonesian melt-down was brewing, supervision reports indicated the Bank's single biggest financial sector project, the Financial Sector Development Project, was riddled with problems.

A thorough supervision effort in August 1996 not only found the project outcome to be unsatisfactory on all counts, but concluded that Indonesia's State Banking Sector was in disarray, riddled with insolvency... the Bank downplayed the evidence presented in the supervision report and rejected the proposed cancellation of the loan for several months, arguing that such action would do serious damage to the Bank/Government relationship. This process also triggered perceptions of unjustified penalties to career prospects of some Bank staff who had brought the issues to light. The staff proposals for in-depth [financial] sector work were shelved; ESW [Economic and Sector Work] in the finance sector dropped from 1.76 staff years in FY95 [Financial Year 1995], to 0.55 in FY96, and 0.10 in FY97. Coverage of financial sector issues in the July 1997 GAS was minimal. The Bank's readiness to address the subsequent financial crisis in Indonesia was seriously impaired.

The report also recounts how the reorganisation of the Bank under Wolfensohn and his 'Strategic Compact' further undermined the ability of the Bank to respond to the Indonesian crisis in 1997-98: "The far-reaching 1997 reorganisation detracted attention from economic development issues", and "complicated the ability of the Bank to respond to the crisis..." The major recommendations of the OED Indonesia study of February 1999 echo the conclusions of countless reports past, particularly the 1992 Morse Commission and Wapenhans reports. If country monitoring is to be effective, there must be "major changes in the Bank's internal culture." Once again:

...warning signals were either ignored or played down by senior managers in their effort to maintain the country relationship. Some staff feared the potential negative impact on their opportunities that might result from challenging mainstream Regional thinking.

One of the biggest obstacles to improved development effectiveness, and a major factor in the culture of loan approval, once again, is the chronic 'clientitis' of the Bank, the desire to keep lending to maintain the 'country relationship' often to the direct detriment of the poor the Bank purports it is trying to help. The current Bank reorganisation is making this clientitis worse, not better. The OED Indonesia report makes clear that in many cases a choice has to be made: "Bank strategy should look at the importance of the issues to the country's development, and not whether the country relationship may be jeopardised".

Failing to deliver the results

The World Bank's raison d'etre, in its own words, is environmentally sustainable poverty alleviation; it is really the only reason why taxpayers in the industrialised world, already faced with a shrinking domestic social safety net, should support such an institution.