The Hindu Business Line : Relevance of the World Bank

Considering the dominance of Sovereign Wealth Funds running into billions of dollars owned by China, Taiwan, Japan and Singapore, besides India, it is time to restructure the shareholding structure of the World Bank.

World Bank headquarters in Washington…The Bank needs to get rid of the umbilical cord connecting it to the US State Department.

S. Venkitaramanan

I was fascinated by a discussion telecast by BBC recently on the future role of the World Bank. Among participants in the discussion were Dr Jagdish Bhagwati, the eminent Indian economist and Professor at Columbia University.

Other participants included Ashok Pradhan, a Bank insider, who presides over the governance unit of the institution, an articulate activist from Nigeria and the Finance Minister of Afghanistan.

The occasion for the debate was the post-Wolfowitz reinvention of the role of the World Bank as a monitor of corruption in developing countries.

Was this focus on issues of reducing corruption in developing countries a reaction to the developments in Wolfowitz’s regime when he faced criticism on this issue?

It may be argued that the source of corruption can well be traced mostly to multinational businesses operating out of developed countries seeking procurement orders. There was also a question as to what precisely will be the World Bank’s function in distributing aid when international private capital flows have increased many-fold to billions of dollars and countries themselves, such as China, are engaged in massive financial assistance to nations in Africa without the Bank’s intervention.

In defence of the World Bank, it was pointed out in the discussion that it continues to be an effective gatherer of funds, a storehouse of knowledge on what works in development and what does not, and an efficient “convener” of meetings and ideas.

Whether its new-found role as a monitor of corruption in developing countries will survive, given its diminishing leverage as an aid-giver, was not fully debated.

In the light of the revelations following Wolfowitz’s favours, the credibility of the IBRD as a monitor of good governance in developing countries is apt to be sorely strained.

“Physician, heal thyself” may well be the response of developing countries at the receiving end of lectures by the IBRD on governance.

Helping organise funds

The participants in the debate generally agreed that in spite of the massive private capital flows, the World Bank continues to be relevant in helping to organise funds, especially for those poor countries where FDI and FII flows are hard to come by. It is particularly relevant for soft loan windows, the International Development Association.

Besides, the association of the World Bank with a project in a developing country does make it more attractive for such capital flows as come to poor countries from private sources. Especially is it true in the case of the business arm of the World Bank, the International Finance Corporation.

Dr Jagdish Bhagwati had an interesting aside in his remarks — he wondered why the World Bank still continued to operate in India, which has achieved substantial rates of growth with relatively low multilateral flows. He particularly questioned the intellectual contribution of the Bank to India’s economic policy-making.

The World Bank’s input in India’s policy-making has been substantially reduced since the crisis years of 1991-92. Even earlier, the Bank’s input in India’s epoch-making Green Revolution was conspicuous by its absence.

The Nigerian representative was quite rightly vocal about the World Bank’s role in introducing corruption considerations in its policy prescriptions. It often becomes doubly damaging if in addition to policy advice, the Bank applies ‘sanctions’ on considerations — often unproven — of corrupt practices. Denying critical soft aid to countries, especially poor ones, on suspicions of corruption, can be damaging, especially to those people who are in most need of aid. The meeting discussed various obvious methods of improving governance. Democracy and transparency were among the most important and there was scope for both these.

Why American monopoly?

It was appropriate that the discussion devoted substantial attention to the issue of perceived American monopoly of choice of the head of the World Bank — and European countries the monopoly of the IMF Chief’s posts. The argument was advanced that America being the source of funds had exercised the right to choose the head of the IBRD.

This may no longer hold good, considering the dominance of Sovereign Wealth Funds running into billions of dollars owned by China, Taiwan, Japan and Singapore, besides India.

It is time to restructure the shareholding structure of the World Bank, increasing the shares of the developing countries and giving them correspondingly higher share in the governance of the Bank.

Surely, the World Bank will be better equipped for the good of the world if it gets rid of the umbilical cord connecting it to the US State Department.

This will also rid the rest of the world of prejudice, against even well-meaning policy advice that comes from the World Bank, that it is American-sponsored.

Of course, the choice of chief of an institution, such as the World Bank, has to be preceded by a transparent process of search, the eligible persons being those of qualifications, experience and knowledge, especially in matters of financial management in developing countries.

In this connection, reference was made to the spectacle of the new Chief of IMF, saying that he will learn about development while on the job. This statement is too ridiculous.

The slate of candidate for the World Bank chief has at least to be enlarged to include persons — other than those with a political link to US State Department — particularly with hands-on experience of development inside developing countries.

Surely, it cannot be the bailiwick of retired US investment bankers and policy hawks of the State Department of the US, funding increasingly less and less of the world’s needed resources for development.

Looking at the full picture

Granted, the World Bank has performed a useful role, by and large, in the history of global development. At the same time, as Dr Bhagwati mentioned, it has also been responsible for catastrophic advice, as in the case of Russia.

When we consider the role of the IBRD, we have to remember that the libertarian traditions of the US have ensured that the Bank accommodated varying voices of dissent from time to time. But that role can be equally well-performed by a United Nations-sponsored University.

There is no need to cocoon intellectuals, admittedly of superior integrity, in the luxury of the World Bank just to elicit ideas that are relevant to the poverty-stricken millions of the world.

In the context of this debate, the coming meeting of G-8 countries assumes importance. Of course, it cannot be expected to tackle the issue of the World Bank seeking to reinvent its role as a prime monitor of corruption.

At the least, what one can hope for is for the developing countries, who are no longer that depressed, to raise their voice for a significant share in the governance of institutions such as the World Bank.

Frankly, it is time to dispel the notion that all development leadership resides in the offices of the US State Department or the Defence Ministry of the US. Better it is done soon before the World Bank assumes the role of a World Vigilance Commissioner in charge of ethics for developing countries.

There is imperative need to change the method of choice of the head of the Bank.

Surely, it is time to cast the net wide for choice of the head of the World Bank, who can be a true leader of development. He/she should come from the developing world and not be a mere student of development!

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