In 2008, The New York Times revealed that pledges by the richest nations such as the U.S. and Western Europeans in Monterrey in 2002 and Scotland in 2005 to increase development assistance had not been met. Times research indicated promises to reach 0.7% levels of GDP had in fact only reached 0.28%. The U.S. was only at 0.16%. Concurrently, most experts agreed key U.N. Millennium Development Targets for reducing global poverty by 2015 would not be achieved. The World Bank is the leading international institution charged with reducing poverty. Prior to the 2008 global financial downturn, the Bank failed to convince rich donors to live up to their commitments.
I believe there were three basic reasons why the Bank had not been a more effective advocate during the 2000s:
1 – Donor countries were deeply skeptical the Bank’s lending was effective. Research from a number of development think tanks, economists and NGOs question suggested important shortcoming in the Bank’s lending effectiveness. Weaknesses in the Bank’s lending portfolio undermined appeals by the institution to donors for more aid.
2 – Borrower countries found the Bank’s lending “conditions” stringent, draconian and often creating unnecessary hardships on their populations. Conditions, such as structural adjustment lending that forced poor countries to reduce public spending, increase savings and reduce inflation may have been sound macroeconomic policies but belied the political realities facing developing economies. As a result, borrowers have increasingly shied away from the Bank and turned to private capital financing for their development needs. This led to an evolution of the Bank’s portfolio with more emphasis on emerging market economies rather than developing economies. And importantly, the Bank influence over client countries weakened.
3 – Shareholders – donor and borrower members – and stakeholders such as NGOs, community-based organizations and private citizens viewed the Bank as a monolithic society where well-connected financiers close their doors to debate the economic fate of millions. Critics accused the Bank of having a culture of secrecy, an aversion to transparency and a lack of accountability. As a result, they hesitated to trust the Bank. The result was the moral standing of the institution had been weakened and its ability to advocate for policies it supports had deteriorated.
In April 2009, the G-20 met in London and pledged to infuse $1.1 trillion in capital to the Fund and Bank. Nevertheless, concerns for donors, borrowers and civil society stakeholders about the Bank have not been fully addressed. Questions remain as to whether the Bank will be any more effective in using the aid provided from the G-20 or future aid than it had before the global economic downturn.
This is the second in a series of blogs to be offered in the next few months on the World Bank and transparency, accountability and reform issues. I invite you to share your own experiences and observations with a wide community of international development practitioners and interested readers.