Paul Wolfowitz speaking at AEI in December 2003.

Paul Wolfowitz, a former member of AEI’s Council of Academic Advisers, assumed the presidency of the World Bank in June and announced that economic development in Africa would be the organization’s top priority. Shortly after his arrival, AEI introduced a series of seminars on challenges facing the World Bank, whose mission is to fight poverty and raise living standards in developing nations. The first event in the series was a June 7 panel discussion hosted by AEI’s Desmond Lachman. Participants assessed the World Bank’s general strategy and operations and considered, in particular, how the World Bank should engage middle-income and poorer countries and reform its bureaucracy.

Nancy Birdsall of the Center for Global Development laid out several tasks she considered crucial for Wolfowitz’s tenure. She urged the new chief to take the lead in creating an independent entity to evaluate donor-based finance programs at the World Bank and other lending institutions, citing education assistance as a field in which billions of dollars are spent around the globe without the required efforts to determine which programs work best. David de Ferranti, formerly of the World Bank and currently with the Brookings Institution, supported the creation of an independent auditor but added that such an organization should operate under strict guidelines so as to avoid becoming another bureaucratic monopoly.

Birdsall and de Ferranti also agreed that the World Bank must reevaluate its role in China and India, which have risen nationally to middle-income status and whose borrowing has declined in recent years. Although Lachman praised successful efforts in both countries to raise living standards, Birdsall pointed out that 70 percent of the world’s poor live in middle-income countries, whose ranks, in addition to China and India, include Brazil and Turkey, for example. She noted, along with de Ferranti, that a decline in borrowing from this group of countries may simply signal disenchantment over delays in loan delivery because of the accounting and fiduciary issues involved in borrowing from the World Bank and lack of interest because of the limited number of products the bank offers.

For these reasons, both panelists urged the World Bank to modernize its financial instruments to be more attuned to the needs of the borrowers. For instance, Birdsall recommended that the bank introduce differential pricing based on each borrower’s per-capita income, meaning that richer countries like Brazil would borrow at a higher cost than “poorer middle-income countries like Paraguay.” De Ferranti added that the World Bank should innovate and learn from the successes of companies on Wall Street instead of continuing to resist change.

Another reform considered by the panelists was that the World Bank should condition assistance on performance and increase its grant programs to the poorest countries. De Ferranti advised that the world should recognize that solving Africa’s problems will probably take decades. AEI’s Allan Meltzer called the increase in grants, particularly to African nations, “very encouraging,” adding that the goal should be to institute more “monitored grants, in which we pay for performance,” making sure, for instance, that children in countries receiving grants are being inoculated against diseases like measles and that effective sanitation systems are being built.

The panelists likewise shared the view that the World Bank must reform its internal bureaucracy. De Ferranti contended that successful economic development strategies work in conjunction with private-sector and grass-roots efforts. According to Meltzer, World Bank staffers’ complaints about the organization’s lack of effective leadership and of external and internal incentives must be turned around by rewarding the creation of innovative and successful economic development strategies. These should be based on principles of private property, open economies, the rule of law, and the monitoring of programs and grants to ensure that assistance actually reaches the neediest areas within the borders of recipient nations.