By Judy Cheng-Hopkins
Judy Cheng-Hopkins is an adjunct professor at Columbia universitys School Of International and Public Affairs. She has been the Asst. Secretary-General Of Peacebuilding and the Asst High Commissioner for Refugees, apart from being at the UNDP for 20 years.
The World Bank has, for decades, been seen as a financial powerhouse for the developing world which is able to turn to it for significant loans. These include soft loans, low-interest rate, for infrastructure and social sector projects. The World Bank promotes itself as an organisation to eradicate poverty, a champion of the poorest of the poor. Therefore The New York Times piece, The World Bank Is Remaking Itself as A Creature of Wall Street, by Landon Thomas Jr. on January 25, 2018, was attention catching.
The success barometer for the Bank over the last 60 years is a debatable topic. However, the proposition to play a middleman role, of sorts, by tapping to private sector funds from Wall Street to distribute loans to developing countries, as a pressure releasing mechanism under the threat of President Jim Yong Kim brings shock and disappointment. Such reform gimmicks, or, in reality, a clever marketing strategy, uses something multilateral organisations are good at. Also, as speaking up against reforms are unprogressive the charade usually proceeds unhindered. The contrast is that this time the reform is, in fact, necessary because there is no other path for obtaining financing.
Failure of the old World Bank model
The current model focuses on rich industrialised countries as members or shareholders, to provide funds to the bank to lend to poor countries. However, this system is under threat due to certain reasons.
First, the multilateral aid has shrunk dramatically in recent times, not only because of the recession that happened 10 years ago but also because of a surge in both man-made and natural disasters. Massive irregular migration, refugee flows and resulting humanitarian crises lead to overexertion and redirecting of funds. Some of the most generous and steadfast donors, like the Nordic countries, have openly admitted that they divert their development aid for domestic use to settle or assist refugees coming in large numbers to their shores.
Second, after six decades of funding, there is undoubtedly a ‘development aid fatigue’ of sorts. Even UNDP, once the largest multilateral grant aid organisation, has witnessed its core budget plummet by about half, which was recorded at over $1 billion a decade ago. Mirroring of the same effect can be seen in all the development agencies. However, some humanitarian agencies have been spared. Many donors feel that developing countries, which have seen successful growth rates in recent times, rely more and more on private financial flows. They argue that the under-funded countries should have better policies and better governance to attract private funds.
Third, the crucial factor is that the World Bank’s largest financier and largest shareholder, the United States, has under the new administration, become its harshest critic. The US has incessantly complained that the only ones benefiting from the Bank are advisers and consultants flying around the world in first class.
And lastly, a new bigger player has come to town: China. It plans on spending, more than $1 trillion on roads, power plants, bridges, cyber networks and other projects in countries across Asia, Africa, Europe and Latin America to expand markets and political influence, under its One Belt, One Road initiative.
A change in direction
Under the circumstances, there is little option but to make a 180-degree turn. According to the previously stated NYT article, the President of the Bank wishes to increase its private sector window from, $7 billion a year to $30 billion a year as otherwise the Bank would remain superfluous. However, whether it will achieve results remains elusive, similar to most reform initiatives from multilateral organisations. The fact that people tend to move on after 10 or so years only suggests that a new grandiose plan will be underway.
The Structural Adjustment Programs of 1980-90s left many in the developing world worse off. Basically, those loan programs came with conditionalities, directing countries who want loans to tighten their belt and show the world that they can live on their own means. The government spending, along with the state enterprise sector, had to curb their expenses, but the program paid little attention to the needs of the majority, such as the poor, the now-unemployed and their families, along with lack of safety nets or intermediary programs in place. It was no wonder that UNICEF came out with an alternative Structural Adjustment with a Human Face.”
Even more dramatic was the introduction of austerity programs for countries that had come out of civil war, like El Salvador, in the early 90s. In their book Obstacles to Peacebuilding, Alvaro de Soto and Graciana del Castillo, argue that at a time when political sensitivity, along with greater awareness, was necessary to reintegrate ex-combatants in order to make the peace stick, the Bank went into business as usual mode.
Therefore, the author feels, that a strategy catering to emerging economies will devalue the World Banks status from being a champion for the poor to catering to the not-so-poor. It is understandable that the Wall Street would prefer emerging economies to those not emerging. Even then, this serious effort will only bear fruit if some credible entity monitors the reinvented World Bank for results. Enough talk about results-based, the new strategy needs to be evidence based!
Featured Image Source: Wikimedia Commons