Monday, January 10, 2005

Get serious about the World Bank 

Via this post from Nouriel Roubini -- with whom I agree that Israel has done well to get Stan Fischer to head its central bank -- I get a good news/bad news moment about the World Bank. The good news is that James Wolfensohn is leaving and Robert Zoellick is no longer tapped to be his successor. This is good news because Wolfensohn is seen as very heavy-handed, prickly, and distrustful of people who try to tell him how to change World Bank policy for the better. Zoellick might have been more receptive, but the position is not about trade and nothing else in Zoellick's resume would indicate that he was ready to deal with the Bank's issues.

But the bad news is that the Bush Administration is seriously considering letting John Taylor take the post. Taylor is an academic economist who went over to Treasury to take the high-visibility post of undersecretary for international affairs. See the WSJ article in the comments on Roubini's post to see how underwhelming he has been -- my contacts indicate a similar performance while he was on the Council of Economic Advisors.

What would be good for the World Bank? In his testimony to Congress after authoring a report on reforms at the Bank and the IMF, Allen Meltzer makes it quite clear:

The central issue about the World Bank with its many programs is: It spends or lends about $20 billion a year but neither we nor they know which programs are effective and warrant expansion or retention, and which are ineffective and inefficient and should be abandoned. The monitoring that Congress insisted upon for part of IDA should be extended to the entire bank and its affiliates.

There are two ways to gain the needed information. One is an independent performance audit by an outside agency. Another is development of an independent, internal group similar to the GAO or the IMF�s Independent Evaluation Office. The current arrangement does not meet this standard.

An example will bring out the problem. We have considerable evidence that poverty has declined dramatically measured by the number of people living on $1 per day or less. The decline is most striking in Asia especially in China and India. Market opening, private investment, protection of property rights, and the like contributed much to the improvement. Where these spurs to growth and development are largely absent, as in Sub-Saharan Africa, poverty has increased. Did World Bank programs contribute to the reduction of poverty in Asia? Did these programs ameliorate worsening prospects in Africa? The Congress should require answers to these questions.

Further, the Bank should concentrate on the hard cases, the impoverished countries. The Bank should have an explicit program for graduation. Countries that can borrow in the capital markets with investment grade ratings should not receive subsidized loans. Those loans can be better used to provide potable water, sanitary sewers, disease control in the poorest countries and to encourage countries to adopt institutional reforms that have been effective in spurring development. These include the rule of law, open trading arrangements, and protection of property rights and individual rights.

It is quite unlikely that any of the candidates that the Bush Administration is considering have the intellectual wherewithal and the determination to make this happen. If Bush is serious about making the spread of democracy a cornerstone of his foreign policy, getting serious about the World Bank should be a priority.