USA: Wolfensohn Responds - Limiting the World Bank

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.

• 194 World Financial Institutions