World Bank has history of controversy

Even before the selection of Wolfowitz, the World Bank’s relationship with the developing world has grown increasingly fractious in its nearly 60-year history, and calls for its reform have grown.

Critics have accused the world’s top financial institution of being out of touch with the needs of the poor, arrogant in its attitudes and often obsessed with complex policies hindering the fight against poverty.

Original purpose

Charles Hogston, a professor of international finance at McGill University in Montreal, Canada, says that the World Bank was originally founded for the task of reconstruction after the second world war. “But today the World Bank acts as the key development agency in the world,” he said.

With over 184 member countries, the bank’s primary task has been to promote economic development and alleviate poverty. Since its inception, the World Bank has lent and given grants and credits worth more than $400 billion.

Its money has been spent on projects such as motorways and dams. Another arm of the bank – the International Development Association (IDA) – has focused exclusively on the world’s poorest nations. The bank’s policies towards the poorest nations have become the issue of the most public concern.

Diplomatic sensitivities

“Critics have complained that loans and long-term agreements have hurt rather than helped developing countries” Haresh Yudyinto, development worker

Under the bank’s charter, the president of the bank traditionally has abstained from taking any “political stance”.

Outgoing president James Wolfensohn, who failed to win US renomination, worked closely with world leaders, looking at ways of cutting poverty and improving conditions.

It is this aspect of the job that often has prompted comparisons between the president and that of a company chief executive. The president is responsible for the day-to-day running of the organisation, overseeing the bank’s six regions and managing its complex global operations.

The bank president also is assumed to be an important representative of the world’s poorest people. Through lobbying and speeches, the president is able to draw attention to the problems faced by developing nations such as unfair trade conditions and debt repayments.

Economic controversies

Despite its lofty goals, the bank has not been universally loved in its half a century of existence. 

“Critics have complained that the low-interest loans and long-term agreements have hurt rather than helped developing countries,” Haresh Yudyinto, a development worker in Burma, observed while writing about the Bank for the [Burma] Observer journal.

“By making nations dependent on aid, countries such as the US use the World Bank to exert political pressure on countries such as Myanmar [Burma], which is in need of development funds,” he wrote.

World Bank problem

NGOs see the World Bank as an instrument of global exploitation

The perception of political pressure to follow bank policies in exchange for development funds has been controversial.

“How can poor people afford to buy water if they cannot afford to buy food?” asked a Kenyan member of parliament, Oburu Odinga, at a recent parliamentary seminar.

Odinga questioned why the bank should demand that water supply be privatised.

The finance committee, represented by Odinga, had been told that aid from the World Bank was not forthcoming, as they had expected – even though they had complied with demands to clamp down on corruption.

“It appears that when we finished complying with one set of demands, more demands were set,” Odinga told the East African Standard newspaper recently.

Case failures

In non-governmental circles, the belief that the bank is more arrogant and less effective in helping the poor has grown in the past few decades. Many critics accuse it of making matters worse in its attempt to resolve macroeconomic policies problems in the Third World.

“There have been several instances where following the bank’s involvement, such as in Argentina in the late 1990s and Bangladesh in the ’80s, where output and growth rates fell, unemployment rose and the differences between rich and poor grew wider,” Yudyinto of Burma wrote.

Bank policies have become too intrusive, he said, and many, even among the world’s elite, have begun talking about reforming the financial body. 

Lorenzo Bini Smaghi, a director of international financial relations at Italy’s Treasury Department, agreed on the need for reform.

“The key question is whether the Bretton Woods institutions [World Bank and IMF] have been able to adapt so as to continue to pursue efficiently their primary objectives, which are the stability of the international financial system and the fight against poverty.”

Politics trumps economics

The shareholders of the bank are considering giving grants instead of loans to very poor countries and limiting conditions to macro-economic targets.

The bank has been working for years to become more transparent, more accountable and more participatory.

“It appears that when we finished complying with one set of demands, more demands were set” Oburu Odinga, member of Kenyan parliament

Formerly secret information about its decision making, its financial disclosure rules and staff codes of conduct have now become public.

Beyond these measures, however, a deeper adjustment is being urged by free-market thinkers: to its shareholders, the bank has become a political tool that is often used to further their own ends, namely that of the US, the biggest donor state.

“As long as there is confusion about the bank’s true purpose, any changes in their behaviour or structures, however sensible or well-meaning, will continue to be viewed with suspicion. … Wolfowitz’s appointment, with his history, will only fuel this perception,” Hogston says.