World Bank: A critical organizational review - Essay Example

World Bank: A critical organizational review Anne who History 123 MA International Studies II INTRODUCTION The World Bank is formally known as the International Bank for Reconstruction and Development, an international financial institution whose purposes include assisting the development of its member countries, promoting and supplementing private foreign investment, and promoting long-range balanced growth in international trade.1 At its founding, the World Bank was conceived as an institution that would finance reconstruction projects in war-ravaged countries following World War II.2 The largest single source of financial and economic assistance in the world, the World Bank first operated in 1946.3 The World Bank is one of the most powerful financial institutions in the world. Together with the International Monetary Fund (IMF) it formulates and enforces major economic policy decisions for over 75 mostly poor countries. Why the Bank and IMF are able to exercise such unrivalled power is due to other lending institutions and governments generally denying credit to countries that have not complied with the Bank and IMF's demands. This is because many of the countries subject to World Bank and IMF supervision are desperate for the funds that these institutions provide.4 The Bank provides both loans and grants to poor and middle-income countries that have no access to international capital markets. These loans offer interests below market-value rates. 5 Funding these ventures, however, is not an easy task. The Bank needs to channel concessional and non-concessional loans in a counter-cyclical way to these countries in times of crises or private flow drought.6 Developing countries greatly value the contribution that the World Bank group gives them for growth. However, they, and others see a need for reforms in the Bank in terms of responding to global challenges.7 This paper shall touch on the functions, role, and significance of the World Bank, the perceived defects in its operation, and then suggest ways in which it could be reformed. THE WORLD BANK Functions and role. The World Bank is dedicated to providing financing, advice and research to developing nations to aid their economic advancement.8 The World Bank today consists of four financing arms, the largest of which is the International Bank for Reconstruction and Development (IBRD). Since the early 1980's the IBRD and the International Development Association, the Bank's concessional no-interest lending arm, have accelerated so-called structural adjustment lending.9 Significance. Created out of the Bretton Woods agreement of 1944, the Bank was successful in providing financing for devastated countries following WWII. Today, the Bank attempts to fight poverty by offering developmental assistance to middle and poor-income countries. By giving loans, and offering advice and training in both the private and public sectors, the World Bank aims to eliminate poverty by helping people help themselves.10 Since the 1970s the bank has provided an increasing number of loans for agricultural, educational, and population programs. These loan programs have the goal of raising the standard of living and increasing self-sufficiency of these countries.11 The bank then has moved away from financing large-scale infrastructure projects, such as roads, railways, and power facilities. Along with the IMF, the World Bank has refused to cancel unpayable debts owed by poor countries, even though it has the resources to easily do so.12 DEFECTS IN RESPONDING TO GLOBAL CHALLENGES A. Debatable effectiveness. The effectiveness of the performance of the World Bank has been a highly contested debate. More than half of the World Bank programs overall and more than two thirds of projects in the poorest countries failed to achieve both satisfactory and sustainable results. Although the Bank claims 75-80% success rates, the Meltzer Commission that reviewed the Bank's own data, found this out. 13 The Bank has also been criticized for its role in financing projects that have been detrimental to human rights and the natural environment. 14 B. Difference in decision-making. As recorded by Griffith-Jones,15 the capital structure and governance arrangements at the World Bank continued to reflect its original purpose, despite huge changes in the global economy. The basic 'finance co-operative' model of the World Bank was also followed in the creation of the four major regional development banks such as the Asian Development Bank, as well as in a number of sub-regional development banks such as the Andean Development Corporation. However, in the regional and sub-regional development banks the borrowing countries tend to have a stronger degree of decision-making power than they do at the World Bank.16 C. Structural adjustment programs. For more than twenty years, the Bank has imposed stringent conditions, known as "Structural Adjustment Programs," on recipient countries, forcing them to adopt reforms such as deregulation of capital markets, privatization of state companies, and downsizing of public programs for social welfare.17 Privatization of water supplies, fees for public schools and hospitals, and privatization of public pensions are among the most controversial Bank reforms. While the Bank insists that "fighting poverty" is its first priority, many critics believe instead that it is responsible for rising poverty. 18 SUGGESTED REFORMS Significant problems that should see reforms in World Bank involve many, particularly the following: those in connection with contracts, those with governance of financing, those undermining the national sovereignty of recipient countries, and those in connection with environmental and social damage. A. In connection with corruption related to contracts. Enad Mekay19 suggests the following: 1) Bar international contractors; 2) Deal with Ad-Hoc Companies. It has been noted that such projects are usually financed or administered through an auxiliary of a parent company, which is created just to carry out a particular project and then dissolved once the work is completed. That parent should be held responsible for any corrupt activities; moreover 3) Audit how money was spent; 4) Trace disbursed funds; and 5) Establish an international auditing body. B. In connection with governance of financing. Increase the voice and vote of developing countries in World Bank governance to increase their ownership of the policies advocated by the Bank.20 As developing countries are so clearly supportive of the role that the World Bank is essential in playing, increasing their role in its' governance would increase its' importance. These were the same reforms suggested for the International Finance Institutions (IFIs) that includes the World Bank given by Eldis. 21 They underscore that real democratic control over the Fund and the Bank activities is necessary through parliamentary control. 22 C. In connection with undermining the national sovereignty of recipient countries. The World Bank is criticised for this through its pursuit of economic liberalisation and guarantees for private international investment. The Bank's defence is that it does not force anybody to get a loan.23. Although this is a by-product of contracting loans, a review of policies is in order. D. In connection with environmental and social damage. In June 2000, Dr. Konrad Raiser of the World Council of Churches, said World Bank policies "contributed to a widening gap, the virtual exclusion of an increasing number of the poor and widespread social disintegration."24 Also, Rich cited Bank-supported projects that ignore end-use efficiency, conservation and local social organizations.25 Mentioning projects in the largest borrowing countries, he mentioned the transmigration in Indonesia; the dams in India; deforestation, dams and roads in Brazil, all forcing the displacement of millions of impoverished people. Rich argued that global environmental management has failed because there are no global solutions, only local ones.26 He pointed to such agencies as Inter-American, the African Development Foundation, Appropriate Technology International and Oxfam as organizations that take a more sensible, effective local approach to development than does the World Bank.27. Whatever is workable in the operations of these organisations should be emulated. Throughout the period from 1972 to 1989, the Bank allegedly did not conduct its own environmental assessments and did not require assessments for every project that was proposed.28 Assessments would have provided some semblance of check and balance, but since none were required by World Bank, the message implied is that the World Bank will not check anyway where the money goes. Lacking controls, it is not a surprise if it reports of corruption in loan money. CONCLUSION There are matters that are within the control of the World Bank. For example, World Bank loan conditions require countries to grow food for export rather than for local sustenance.29 This is something within the control of the World Bank - to do or not to do. .There are others, however, that are beyond its control. Financing development is a complex thing that must be handled properly with some competencies. The reality is that so many hands are involved. In the end, what matters is that both sides - the bank and its stockholders on one hand, and the loan recipients on the other - must have a commitment to do what should be done with the loan money. Some complaints may be valid but they mostly arise from the complexities of chalking up loans - including perhaps as a by-product of having negative cash flow.30 The World Bank may listen to recommendations, assess them and carry out what is proper and feasible. However, the World Bank has been taken to task for habitually disregarding recommendations. 31 It is said there is the Independent Evaluation Group (IEG) that plays an important check and balance role in the World Bank.32 However, even with the existence of any check-and-balance entity in the World Bank, it will not find any meaning to its role if its reports are not given any weight as to make way for reforms. Corruption will thrive where it will.33. What really counts is the intention of man whoever he may be: the loan getter or the loan giver. There maybe many watchdogs for every act, but if one intends to do the opposite of what is intended, nothing will come out if it - with watchdog or none. Endnotes 1 'World Bank Group,' Legal encyclopaedia. Thomson Gale. Answers.com Retrieved March 11, 2006, from http://www.answers.com/topic/world-bank. 2 'Frequently Asked Questions (F&Q,)' World Bank Boycott. World Bank Info. Retrieved March 11, 2006, from http://www.wbbeurope.org/downloads/toolkiten.phpidmain=2&id=faq.3 3 K. Ringle. 'Writing from the Inside, an Economist syas the world Bank is failing its Mission.' Washington Post. March 20, 2002. Retrieved March 12, 2006 from http://www.globalpolicy.org/socecon/bwi-wto/wbank/2002/0320easterly.htm. 4 F&Q, World Bank Boycott. 5 'World Bank Group,' Legal encyclopaedia. Thomson Gale 6 S. Griffith-Jones. 'Governance of the World Bank.' Report prepared for DFID. Retrieved March 12, 2006 from http://www.stephanygj.com/_documents/Governance_of_the_World_Bank._Paper_prepared_for_DFID.pdf. 7 Ibid. 8 'The World Bank.' Investopedia in answers.com 9 Ibid. 10 'The World Bank.' Investopedia 11 'World Bank Group,' Thomson Gale 12 F&Q, World Bank Boycott 13 A. Lerrick. 'Statement Presented to the Joint Economic Committee of the Congress of the United States.' World Bank Reform. March 6, 2002.Retrieved March 11, 2006, from http://www.house.gov/jec/hearings/03-06-02/lerrick.htm [Adam Lerrick is Director of The Gailliot Center for Public Policy and Friends of Allan H. Meltzer Professor of Economics, Carnegie Mellon University]. 14 F&Q, World Bank Boycott 15 S. Griffith-Jones. 'Governance of the World Bank.' Report prepared for DFID. Retrieved March 12, 2006 from http://www.stephanygj.com/_documents/Governance_of_the_World_Bank._Paper_prepared_for_DFID.pdf. 16 Ibid. 17 'The World Bank.'Retrieved March 12, 2006 from http://www.globalpolicy.org/socecon/bwi-wto/bankind.htm. 18 Ibid. 19 E. Mekay. 'Poorest Pay for World Bank Corruption - US Senator.' Common Dreams News Center. Inter Press Service. May 14, 2004. Retrieved March 13, 2006 from http://www.commondreams.org/headlines04/0514-07.htm. [It was Professor Jerome I Levinson of the Washington College of Law at the American University who suggested placing the international contractors on a proscribed list barring them from bidding on any future World Bank financed projects anywhere in the world.. Accordingly, the bank has now a list of 90 barred companies and individuals]. 20 Griffith-Jones (n.d.) 21 'Long due reform the International Monetary Fund, the World Bank, and global economic governance 60 years later.' Eldis database. Reform suggestions for the World Bank and the IMF CIDSE / International Cooperation for Development and Solidarity (CIDSE), 2005. Retrieved March 12, 2006, from http://www.eldis.org/cf/search/disp/DocDisplay.cfmDoc=DOC19629&Resource=f1wbimf. [This paper draws heavily on Working Towards Progressive Global Governance, CIDSE/CI Background Paper. May 2004. Pp. 28-32. It has been prepared by Aldo Caliari, Center of Concern, and includes contributions from members of the CIDSE/CI Working Group on Resources for Development]. 22 Ibid. 23 'World Bank Group,' answers.com. http://www.answers.com/topic/world-bank. 24 'Why Oppose the World Bank' World Bank Boycott. World Bank Info. Retrieved March 11, 2006, from http://www.wbbeurope.org/downloads/toolkiten.phpidmain=2&id=info-oppose. 25 25 B. Rich. (2002) Mortgaging the Earth.' Retrieved March 13, 2006 from http://www.amazon.com/gp/product/productdescription/0807047074/ref=dp_proddesc_0/002-8487721-7733614%5Fencoding=UTF8&n=283155. [Bruce Rich is senior attorney at the Environmental Defence Fund]. 26 Ibid. 27 Ibid. 28 'World Bank Group,' answers.com 29 'World Bank Facts & Figures,' World Bank Boycott. World Bank Info. July 2003. Retrieved March 11, 2006, from http://www.wbbeurope.org/downloads/toolkiten.phpidmain=2&id=info-facts. 30 Griffith-Jones (n.d.) 31 Le Prestre, 176. [Cited 'World Bank Group,' answers.com]. 32 'World Bank Group,' answers.com 33 H. Marquette. (2004). 'The Creeping Politicisation of the World Bank: The Case of Corruption.' Political Studies Journal. Volume 52, Issue 3, pp. 413-430. Abstract. Retrieved March 13, 2006, from http://www.politicalstudies.org/mainjournal/contents/abstract.aspvid=52&iid=3&aid=488. [Cited in 'World Bank Group,' answers.com]. References 'Frequently Asked Questions,' World Bank Boycott. World Bank Info. Retrieved March 11, 2006, from http://www.wbbeurope.org/downloads/toolkiten.phpidmain=2&id=faq. 'Long due reform the International Monetary Fund, the World Bank, and global economic governance 60 years later.' Eldis. Reform suggestions for the World Bank and the IMF CIDSE / International Cooperation for Development and Solidarity (CIDSE), 2005. Retrieved March 12, 2006, from http://www.eldis.org/cf/search/disp/DocDisplay.cfmDoc=DOC19629&Resource=f1wbimf. 'Oxfam International Submission to World Bank Review of Conditionality,' May 2005 and June 14 2005. Retrieved March 12, 2006, from http://72.14.203.104/searchq=cache:KSlBnWRdWxQJ:web.worldbank.org/servlets/ECR%3FcontentMDK%3D20554736%26contTypePK%3D217180%26folderPK%3D578280%26sitePK%3D40941%26callCR%3Dtrue+reform+world+bank+suggestions&hl=tl&gl=ph&ct=clnk&cd=2. 'The World Bank.' Retrieved March 12, 2006 from http://www.globalpolicy.org/socecon/bwi-wto/bankind.htm. 'What Is the World Bank Boycott' Introduction. World Bank Info. Retrieved March 11, 2006 from http://www.wbbeurope.org/downloads/toolkiten.phpidmain=1&id=introduction. 'Why Oppose the World Bank' World Bank Boycott. World Bank Info. Retrieved March 11, 2006, from http://www.wbbeurope.org/downloads/toolkiten.phpidmain=2&id=info-oppose. 'World Bank Facts & Figures,' World Bank Boycott. World Bank Info. July 2003. Retrieved March 11, 2006, from http://www.wbbeurope.org/downloads/toolkiten.phpidmain=2&id=info-facts. 'World Bank Group,' Legal encyclopaedia. Thomson Gale. Answers.com Retrieved March 11, 2006, from http://www.answers.com/topic/world-bank. Griffith-Jones, S. 'Governance of the World Bank.' Report prepared for DFID. Retrieved March 12, 2006 from http://www.stephanygj.com/_documents/Governance_of_the_World_Bank._Paper_prepared_for_DFID.pdf. Lerrick, A. 'Statement Presented to the Joint Economic Committee of the Congress of the United States.' World Bank Reform. March 6, 2002.Retrieved March 11, 2006, from http://www.house.gov/jec/hearings/03-06-02/lerrick.htm. Marquette, H. (2004). 'The Creeping Politicisation of the World Bank: The Case of Corruption.' Political Studies Journal. Volume 52, Issue 3, pp. 413-430. Abstract. Retrieved March 13, 2006, from http://www.politicalstudies.org/mainjournal/contents/abstract.aspvid=52&iid=3&aid=488. [Cited in 'World Bank Group,' answers.com]. Mekay, E. 'Poorest Pay for World Bank Corruption - US Senator.' Common Dreams News Center. Inter Press Service. May 14, 2004. Retrieved March 13, 2006 from http://www.commondreams.org/headlines04/0514-07.htm. Rich, Bruce. (2002) Mortgaging the Earth.' Retrieved March 13, 2006 from http://www.amazon.com/gp/product/productdescription/0807047074/ref=dp_proddesc_0/002-8487721-7733614%5Fencoding=UTF8&n=283155. Rich, Bruce.1Rich, BTop of Form Ringle, K.. 'Writing From the Inside, an Economist Says the World Bank Is Failing Its Mission.' Washington Post. March 20, 2002. Retrieved March 12, 2006 from http://www.globalpolicy.org/socecon/bwi-wto/wbank/2002/0320easterly.htm. Read More