- The Washington Times - Monday, January 13, 2003

As a new Congress gets down to work, one critical item of last year's unfinished business will be the authorization and appropriation of billions of dollars to the affiliates of the World Bank, and the Asian and African Development Banks that lend at low interest to the poorest countries the International Development Association (IDA) and the Asian and African Development Funds.
Before pouring more taxpayer money into these institutions, Congress should take action on the recommendations of the bipartisan study it commissioned more than three years ago from the congressional International Financial Institution Advisory Commission (IFIAC).
The IFIAC report found that the World Bank and other multilateral development banks have had a dismal record of alleviating poverty and concluded that without major reforms, imposed by lead donors such as the United States, this record of failure is likely to persist. Instead of promoting international development, much of the public money given to these institutions would be wasted.
The IFIAC study cited the bank's own internal audit reports that document the fact that only about half of its lending operations of the past decade are likely to produce sustainable benefits. Despite claims of improved performance, the most recent bank internal evaluation reports for IDA, published earlier this year, find an even lower success rate of sustainable projects, with nearly two-thirds of all lending operations not likely to meet their "institutional development" goals in borrowing countries.
Yet another recent internal evaluation of the bank's environmental performance finds that bank management's botched internal reorganizations have actually "diminished the bank's capacity both to mainstream the environment into country programs and to implement its [environmental and social] safeguards effectively."
And in the case of the Asian Development Bank (ADB), internal audits indicate that less than a third of its recent projects in Indonesia the ADB's top borrower are likely to provide lasting social or economic benefits to the people of the world's largest Muslim nation.
The bipartisan commission identified the core problem to be the World Bank's internal culture of "loan approval," where pushing money is still the top priority and accountability for results on the ground is discounted. A corollary of the loan approval culture is the Bank's lack of political will to control massive corruption in borrowing countries. Based on interviews with World Bank staff, Northwestern political economist Jeffrey Winters estimates that corruption in countries where the bank is active ranges from 30 percent in countries such as Indonesia to more than 50 percent in some sub-Saharan African nations.
The bank claims that poverty reduction is its overriding goal. Yet the most rapidly growing areas of World Bank lending have been direct financial support for the private sector and large "adjustment" loans that provide budget support in exchange for promises of economic reforms operations with even less connection to helping the poor than the more traditional project loans. IFIAC recommended instead that the bank exclusively focus its scarce development resources on monitored grants to improve the quality of life in the poorest countries and incentives for institutional reform, including the rule of law, property rights, and the provision of global and regional public goods. The bank has, as usual, paid lip service to these ideas but accomplished little. Pushed by the U.S. Treasury, the bank agreed to shift some money into grants.
Many legislative proposals for transparency, accountability and governance reforms at the World Bank and the regional multilateral development banks, are supported by a broad spectrum of observers. Like us, the proponents of these proposals have diverse and often opposing political viewpoints.
They agree, however, on the need for reform of the multilateral banks. They also agree on the specifics of many of the needed reforms, and urge Congress to consider and adopt these proposals before authorizing and appropriating billions more for these institutions.
Last year the Republican-controlled House passed a bill urging important transparency reforms at the ADB and other regional multilateral development banks. The new Congress should take up and extend this legislation to include the World Bank in the IDA authorization process. Congress should also require the Treasury Department to promote other key reforms, such as independent audits of the World Bank's management and project performance, and assessments of the social and environmental impacts of adjustment programs.
Zeroing out funding for the Bank's Multilateral Investment Guarantee Agency (MIGA) is another proposal with bipartisan consensus that would improve the poverty-reduction focus of the World Bank. The IFIAC report and groups ranging from Friends of the Earth to the Cato Institute have argued for MIGA's abolition, calling the public agency an egregious promoter of corporate welfare that serves no useful developmental purpose.
Most of MIGA's portfolio provides insurance for large corporations from rich countries to protect investments in middle-income countries, while Sub-Saharan Africa claims only 15 percent of MIGA's outstanding guarantees. A surprising number of MIGA guarantees support investments that should be an embarrassment to an institution that claims to make poverty reduction its primary goal: luxury hotels, spas, shopping malls, soft drink bottling plants and breweries, to name a few.
MIGA proudly touted its first guarantee for Senegal this year, which will enable a Swiss real-estate developer to establish a "thalassotherapy" (ocean therapy) spa on the premises of the five-star Meridien President Hotel in Dakar. In Albania, MIGA assumes part of the financial risk of an Italian bank for, according to MIGA's 2000 Annual Report, a "tourist marina including a lodge, a restaurant, a supermarket, a yachting club, and moorings for leisure boats." Taxpayers should not subsidize projects of this kind.
Congress must act and demand reforms from these public institutions, instead of simply writing them a blank check. Throwing more good money after the bad lending of the past decade is not just a question of wasted resources, it poses a risk we can ill afford fueling global political instability and perpetuating poverty, instead of working to improve people's quality of life and truly helping the poorest on the planet.

Allan H. Meltzer is professor of political economy at Carnegie Mellon University and a visiting scholar with American Enterprise Institute. Bruce Rich is senior attorney and director of the International Program at Environmental Defense.

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