Saturday, July 24, 2004
Ringmaster or Benefactor: The Dilemma of the World Bank
Recently the BBC ran a story on the World Bank and the IMF titled “Is reform underway?”, looking at the performance of these institutions over the last 60 years. Although the philosophy behind the creation of these international organizations (IO’s) is rarely questioned, a fundamental paradox still remains as a result of the following policy.
Rightly or wrongly, when lending money to troubled economies, the IMF and the Bank attach conditions. After all, it is their job to make sure the money injected by their shareholders is not squandered by corrupt or incompetent governments.
On the one hand, retaining a significant amount of control in their investment allows these organizations to influence the creation and enforcement of strong laws and institutions, in the best tradition of macro economic principles, which will ensure that their funds are well spent.
However, on the other hand as the article states
There have been several instances where following the institutions' involvement, output and growth rates have fallen, unemployment has risen and the differences between rich and poor have grown. Critics say the conditions are often intrusive, excessive and inappropriate. And many, even among the world's elite, agree.
Due to highly differing legal, political, socio cultural, economic and environmental conditions in various countries, demands made by these IO’s cannot be generic, but must be tailored towards each specific country. Furthermore, not all conditions on a wish-list can be easily met across every country. An over-reliance on macro economic principles at the expense of socio-cultural, socio political and environmental conditions has sometimes led to contract clauses that are both stifling as well as almost impossible to achieve in the local environment.
There is also growing acceptance among shareholders that national governments should be the judges of their social and political priorities,
The call has therefore arisen for the IO’s to meddle less and act more as patrons. In fact the Delhi Metro Rail Corporation, currently engaged in building a subway rail system in Delhi, chose to be funded by the Japanese Bank for International Cooperation (JBIC) and NOT the World Bank, for exactly this reason.
The fundamental dilemma remains – What are the roles of these IO’s? What sort of structural reforms should be undertaken for them to be more effective? A strict enforcer based purely on macro economic principles at the expense of local institutional nuances is perhaps not the solution.
Rightly or wrongly, when lending money to troubled economies, the IMF and the Bank attach conditions. After all, it is their job to make sure the money injected by their shareholders is not squandered by corrupt or incompetent governments.
On the one hand, retaining a significant amount of control in their investment allows these organizations to influence the creation and enforcement of strong laws and institutions, in the best tradition of macro economic principles, which will ensure that their funds are well spent.
However, on the other hand as the article states
There have been several instances where following the institutions' involvement, output and growth rates have fallen, unemployment has risen and the differences between rich and poor have grown. Critics say the conditions are often intrusive, excessive and inappropriate. And many, even among the world's elite, agree.
Due to highly differing legal, political, socio cultural, economic and environmental conditions in various countries, demands made by these IO’s cannot be generic, but must be tailored towards each specific country. Furthermore, not all conditions on a wish-list can be easily met across every country. An over-reliance on macro economic principles at the expense of socio-cultural, socio political and environmental conditions has sometimes led to contract clauses that are both stifling as well as almost impossible to achieve in the local environment.
There is also growing acceptance among shareholders that national governments should be the judges of their social and political priorities,
The call has therefore arisen for the IO’s to meddle less and act more as patrons. In fact the Delhi Metro Rail Corporation, currently engaged in building a subway rail system in Delhi, chose to be funded by the Japanese Bank for International Cooperation (JBIC) and NOT the World Bank, for exactly this reason.
The fundamental dilemma remains – What are the roles of these IO’s? What sort of structural reforms should be undertaken for them to be more effective? A strict enforcer based purely on macro economic principles at the expense of local institutional nuances is perhaps not the solution.
