Recently concluded Spring Meetings (April 14-15, 2007) of the World Bank and International Monetary Fund in Washington DC discussed various issues, including their medium term strategies. Most media outlets, however, largely focused on the scandal surrounding Mr. Wolfowitz's role in increasing the salary of his partner.
To shed more light on the substance of the Spring meetings and the future role of the Bretton Woods sisters in the international arena, IA-Forum has conducted a number of interviews with development experts. The following is an interview with Dr. Roger Bate, a Fellow at the American Enterprise Institute (AEI). Dr. Bate researches U.S. and international aid policy in Africa and the developing world, evaluating the performance and effectiveness of USAID, the World Bank, the Millennium Challenge Corporation, NGOs, as well as other aid organizations and development policy initiatives. By M. Patel. (IA-Forum, 04/17/2007)
Relevance of the Bretton Woods Institutions
IA-Forum: What is the relevance of the World Bank (Bank) and the IMF (Fund) in our present world?
IA-Forum: To follow-up, since most countries of East Asia are now middle income, and many South Asian ones are on their way to becoming middle income ones, do you think the Bank can be a sustainable institution when its primary poverty reduction mandate will require it to re-orient its focus on smaller nations (and as a result, disburse smaller loans than previously)?
Bate: Yes the middle income issue is going to be a problem, and the Bank will have to make more grants and fewer loans. The World Bank--as a bank in the traditional sense--may only remain a financially sustainable enterprise with increased subsidies from OECD nations.
IA-Forum: So, would it be desirable to turn the World Bank into a grant making body and do away with loans?
Bate: I would agree with making it a grant-making body, if the institution continues to function as a development organization disbursing funds rather than simply assuming a more advisory function, which is probably what it should become.
IA-Forum: Going to the Fund, with many developing nations holding reserves that are substantially more than the total funds available to the IMF, does it make sense to have the IMF as a body to re-address global imbalances?
Bate: Not really. Much like the Bank, the Fund's role may well become largely advisory in nature from now on.
Medium Term Strategies of the Bank and Fund
IA-Forum: The IMF has a medium term strategy whereby it wants to re-consider the voting quota of member states and make some fundamental changes in the way it conducts its surveillance function, with multilateral surveillance being undertaken to address the pressing issue of global imbalances. Do you think this reform process goes far enough, and is fast enough, to address important issues such as global imbalances?
Bate: The Fund simply doesn't have the reserves to stabilise imbalances today. The Fund's only remaining valuable role is its undervalued data-gathering expertise. According to my AEI colleague Adam Lerrick it is this expertise that the IMF should reconstitute its business around.
IA-Forum: Should the World Bank pursue a similar strategy of reform in terms of giving more voting share to emerging economies?
Bate: Probably not, or any major program on anti-corruption/governance, at the Bank, will collapse.
IA-Forum: Speaking of governance issues, the World Bank is trying to create a medium strategy based on anti-corruption--as evident in the recent draft strategy report titled, Strengthening Bank Group Engagement in Governance and Anticorruption. President Wolfowitz is particularly passionate about the issue of corruption (as one of the first major speeches he gave made clear that anti-corruption and good governance would be the central concerns of his presidency). Do you think such a single-minded focus on governance is good for the cause of development?
Bate: Yes, corruption is hugely destructive to the cause of development and makes Bank loans counter-productive because such loans prop up poor management/managers within corrupt governments--amongst numerous other pernicious effects.
IA-Forum: How can the Bank's stress on governance issues in countries such as India and Cambodia (where some projects were put on hold due to corruption concerns) square with faster disbursement of loans / grants in places such as Pakistan, Afghanistan and Iraq (where the governance institution's are weak)? How would one respond to critics who claim that Mr. Wolfowitz is using the Bank as a vehicle to promote US foreign policy interests?
Bate: There is some truth to President Wolfowitz's furtherance of US policy through the Bank. I think he is right to combat corruption and to ignore the issue of graft in some places, due to US policy interests, is wrong.
IA-Forum: How does the trade-off between development effectiveness and development in general play out? How can it be resolved? For example if you want the most ‘bang for the buck' you would want to give money to a responsible government, but what about people living in countries with corrupt governments? Do we punish people for their governments?
Bate: Firstly, the Bank rarely measures the performance of its loans/grants. Its evaluations are pretty poor generally, so it is hard to tell when loans are working anyway.
I don't think the paradox you highlight can be resolved easily. In the most corrupt locations, the only support that should be given, must bypass governments (such as supporting civil society groups). I would argue that IMF loans, in some very poorly governed areas, and the tacit support such loans bring--for example in Zimbabwe--has been detrimental to both the IMF and also to the people of the countries involved. Such loans have provided some cover for the Mugabe regime. Ultimately, the poorest and least politically powerful cannot be helped by the IMF or the World Bank in places like Zimbabwe. Development aid cannot improve life for ordinary people in such places, except for food and other humanitarian aid. In less disastrous but still corrupt countries, such as Kenya and Nigeria, multilateral and bilateral aid may save life in the short run, but is misused and again shores up corrupt practices.
Bilateral Flows, Aid Coordination and Future of the Bank and Fund
IA-Forum: With the Paris declaration, most aid givers realize that in order to have better development impacts, there needs to be better coordination among donors. How do you think the World Bank can facilitate this process? What incentives would donor agencies have to better coordinate policies when their own funding is contingent on showing ‘results' for their own individual projects/programs?
Bate: The area I know best is health. I see no useful systemic coordination being done in the area I follow. Health targets are set, and most are not measurable (Of the 5 health MDGs 3 are not currently measurable systematically). Or they're measured where possible; it's not a systematic exercise.
All agencies--multilateral and bilateral--want to claim credit for any successes and so all want to do everything. It's a classic example of everyone being responsible for everything and hence no one responsible for anything. In malaria, it has proven to be a mess. All agencies are involved in health programs and now are getting involved more in health system development. Round 7 of the Global Fund grant dispersements will include supporting health system development - a skill set the Global Fund does not have, and hence should NOT fund. Contrast this with the Bank, which does have a key role in health system financing and infrastructure support, yet it seems to want to pursue treatment programs as well.
All parties should be able to claim benefit if projects succeed, and they have played their respectively useful role. But with such bad measurement of project performance generally, there is a scrambling to gain credit for meager measured success, and little specialisation, from supposedly specialised agencies.
IA-Forum: Are bilateral aid flows better than multilateral ones (since in the former you have some degree of accountability demanded of donor governments from their citizens)? Or are multilateral aid flows more distant from political objectives as opposed to development ones, and hence better?
Bate: There is not enough measurement to really know. Where the US government has successful development projects, such as the recent President's Malaria Initiative, it has easily outperformed multilateral ones. But if one includes aid for places like Egypt, Iraq, Afghanistan and the like, overall US bilateral aid projects may have underperformed compared to development projects supported by multilateral agencies.
IA-Forum: Do you think that the World Bank and IMF should be replaced by ,or their role diminished relative to, regional development banks (which are still not as strong as the World Bank in terms of both disbursing funds and generating knowledge) and perhaps the creation of regional monetary funds? What would be the most effective role of the Bank and Fund in the future 20 years, say?
Bate: The role of the World Bank should be phased down to a multilateral development agency giving only grants and providing advice. The IMF will probably become entirely irrelevant as private capital and government flows vastly outweigh its resources - it will survive as a valued data-gathering center.
Recent Scandal Surrounding Mr. Wolfowitz
IA-Forum: Going to an issue that has been much highlighted in the media recently, what do you think of the recent controversy surrounding Mr. Wolfowitz's partner's--Shaha Ali Riza's - salary raise and the calls for Mr. Wolfowitz's resignation?
Bate: I don't think it's an issue of corruption, just a misjudgment. And a bad one at that!
IA-Forum: Some have suggested that this controversy may be part of a broader struggle between the Bank's Board and Mr. Wolfowitz over the anti-corruption agenda being aggressively pursued by the latter?
Bate: Yes, I think many people want President Wolfowitz to suffer!
IA-Forum: Is this controversy a reflection of the deeper resentment among international civil servants and organizations for the Bush administration's foreign policies (and since these bodies can't change US policies, they're taking aim at Mr. Bush's appointees)?
Bate: For some people yes. This is particularly true for many people in the EU.
IA-Forum: Thank you, Dr. Bate.