Do-Good Bank Can't Please All

Reform of The Reformers

When the president of the World Bank, James Wolfensohn, visited Indonesia earlier this month, he expected to offer $600 million in loans to help fight poverty there.

What he didn't expect was a dressing down at a meeting with opposition leaders and activists. They chastised the bank for lending billions to their government despite rampant corruption, human rights abuses, and a lack of democratic development. Bank support for the regime of Indonesian President Suharto, several said, contributed to the country's economic meltdown.

"I was proud of what we've done," Mr. Wolfensohn told reporters afterward, "but no doubt we didn't get everything right."

The tense meeting underscores the controversial reputation of the bank in the very countries it was created to help - despite a reform campaign, led by Wolfensohn, promising to listen more carefully to ordinary people.

Founded in 1944 with the task of improving life for the world's poor, the Washington-based development bank has since loaned hundreds of billions of dollars to governments in developing countries. Its low-interest loans have funded the construction of dams, highways, airports, schools, hospitals, and factories.

But the bank has more than its share of critics, from conservative economists - who think the market would do the job better - to environmentalists and human rights activists, who say its projects support the rich at the expense of the environment, indigenous people, and the poor. Depending on whom you talk to, the world's largest development bank is a "bastion of socialism," "a tool of the imperialist West," or simply "the Death Star" - a reference to its huge $314 million headquarters in Washington.

But the bank has been responding to its critics. Under Wolfensohn, it has undertaken reforms to improve its efficiency, avoid catastrophic project failures, and ensure that its loans help reduce poverty while protecting the environment. Bank officials say that thinking and priorities at the institution have changed so much it's not the same bank anymore.

"Wolfensohn came in here and started asking very pointed questions, like 'Why don't you listen to the nongovernmental organizations when they say there are problems with a given project?' " says Mark Baird, the bank's vice president for strategy. "One of the good things about bureaucracies is that they learn pretty quickly which way the wind is blowing. The signals from the top changed, and the institution is changing. It just takes time."

By its own admission, the bank has made mistakes during its 53-year history. Enormous dam projects have forced tribal people from their homes, often into destitution. Agricultural programs sometimes increased hunger by supporting the creation of large plantations that pushed subsistence farmers off the land and into urban slums. Highways were built in inappropriate locations, and bungled loans pushed poor countries deeply into debt.

The bank funded Indonesia's Transmigration Program, which aimed to resettle millions of Javanese to less crowded islands, where they cleared valuable rain forests for what turned out to be infertile farmland. The error was repeated in Brazil, where the bank underwrote a government road-and-colonization program that is behind the destruction of the Amazon rain forests.

"It's allowed governments to thrive without being accountable to their people," says economist Patricia Adams, executive director of Probe International, an environmental organization based in Toronto. "If the bank disappeared, the world would be a better place."

The bank is funded by taxpayer money from the United States and other wealthy nations. It can only lend to governments for specific projects. These traditional lending operations have been challenged - some say made obsolete - by the advent of the global marketplace. Private capital flows to developing countries quadrupled from 1991 to 1996, reducing the need for the bank's loans in many countries.

"I don't think the bank is relevant in today's world," says Ian Vasquez, an analyst at the libertarian Cato Institute in Washington. "The bank's lending just reduces the pressure on governments to make the economic reforms that would attract private investment and reduce poverty," he says.

Much of the bank's emphasis has been on building new partnerships with other lenders, nongovernmental organizations, corporations, and the poor people the bank is intended to help. Hundreds of bank personnel have moved from headquarters to field offices to be closer to clients. It has joined with the World Wildlife Fund to save the rain forests, and with the International Union for the Conservation of Nature to assess the effects of large dams. Together with the Paris Club of international lenders it has been working to ease the heavy debt burden in poor countries, mostly in sub-Saharan Africa.

Lending for projects in education, health, nutrition, and the environment has been increased, although most project loans still go to transportation, energy, and agriculture.

Bank officials say the most important change is an emphasis on "policy loans" - money packages to finance fiscal, economic, and regulatory policy changes that encourage foreign investment.

The proportion of loans considered at risk of failure also has declined, from 32 percent in 1992 to 25 percent in fiscal 1997. The proportion of newly completed projects considered "unsatisfactory" declined from 35 percent to 27 percent between 1994 and 1995. And 90 percent of the multinational firms interviewed for a 1996 US Government Accounting Office report said that World Bank activities enhance private investment opportunities.

"They've done a little tinkering on the margins, but the economic-policy framework at the bank remains the same," allows Douglas Hellinger, executive director of the Development Group for Alternative Policies, a Washington-based advocacy group. "The bank acts primarily in the interests of bankers and investors in the West, not on behalf of the world's poor."

Bank officials counter that despite its shortcomings, the bank has helped improve the lives of poor people. The proportion of the developing world living in poverty has decreased in the past 25 years from 40 percent to 25 percent. Infant mortality, food supplies, and other poverty indicators have also improved.

"There have been some mistakes and disasters, but many more people have benefited from the bank's projects," Mr. Baird says. "There's a lot of work to be done to improve our effectiveness, but we're still the best vehicle if you want to channel money or ideas to reduce poverty. Our successes aren't always as well celebrated as our failures."