- The Washington Times - Thursday, April 22, 2010

ANALYSIS/OPINION:

When global financial leaders gather in Washington next week for the World Bank-International Monetary Fund (IMF) annual meetings, one item will be at the top of the agenda - winning new funding from the United States and other donors so the institutions can replenish their coffers, depleted by the global economic crisis.

This is an understandable request. The World Bank, the IMF and the regional development banks came to the rescue of many developing countries last year and helped keep them from collapsing. The accelerated disbursements and expanded lending were costly, but the experience demonstrated the banks’ value in advancing U.S. policy goals and leveraging taxpayer dollars.

Yet in my view, the additional funding should not be granted automatically. While the World Bank and others played an important role in stabilizing many economies, they achieved these successes despite problems with bank operations that continue to impede the banks’ effectiveness. Congress and the Obama administration have an opportunity to press for overdue changes at these institutions.

This is one of the main conclusions in a report published recently by my Senate Foreign Relations Committee staff, titled “The International Financial Institutions: A Call for Change.” Based on several years of oversight activity and six committee hearings, the report makes 50 recommendations on how the IMF and the banks “could better serve American interests and more effectively achieve their missions of alleviating poverty, hunger and disease in poor countries, promoting sustainable development, economic growth and good governance, and ensuring financial stability.”

I have emphasized to Treasury Department officials, who conduct negotiations for funding on behalf of the United States, and to the staffs of the institutions, that each request for a capital increase must be judged on its merits. The crisis should not be used to obtain funds that otherwise could not be justified. Increases required specifically for the crisis should be temporary in nature.

As the report notes, “The Obama administration will have to make a strong and compelling case if further U.S. tax dollars from an already-overstretched federal budget are to be made available.”

The needed changes fall into a few broad categories. One is for the World Bank and its regional sister banks to shift their focus from simply issuing loans toward achieving concrete development results in a finite period of time. A widespread pressure to lend obscures the banks’ mission of creating stable, self-sustaining economic growth in the developing countries they serve.

Another is that the banks are too secretive. As the report notes, all of them “suffer from a lack of transparency” regarding loan decisions and assessing the success of projects once they are completed. This lack of openness hurts “both public perceptions and their effectiveness,” the report says.

A third area is corruption, which our Senate hearings identified as a major impediment to the development banks’ success. The report recommends stronger internal anti-corruption controls and allocating more funds for preventing, monitoring and investigating possibly corrupt activities.

The development banks, like other large institutions, are often slow to accept and implement these kinds of reforms. For instance, legislation I authored five years ago urged the banks to adopt a policy that any firm found guilty of corruption by one development bank would be blacklisted by all. Only this month did the banks finally take this welcome step.

That’s why we should use the leverage we have now. The Treasury Department last year missed such an opportunity with the IMF by rushing a major crisis-related authorization through the legislative process, effectively denying Congress a chance to promote needed changes.

Cooperation has been better since. Asian Development Bank officials in the fall consulted directly with Congress before terms of a capital increase were agreed. Last month, Treasury signed off on new funding for the Inter-American Development Bank in return for a number of specific reforms, including a better system to measure results, higher disclosure and transparency standards, and new flexibility to deal with Haiti’s earthquake disaster.

Congress must remain vigilant to ensure that the reforms are implemented as promised at each development bank. Moreover, improving performance should be continuous. I recently wrote to the heads of all the development banks asking them what they have done to trim operating costs and enhance efficiency. At a time when Americans and the taxpayers of other donor countries are tightening their belts, the banks should tighten theirs.

Sen. Richard G. Lugar of Indiana is the senior Republican member of the Senate Foreign Relations Committee.

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