World Bank:
Whose Bank and for Which World?


Mohammad Omar Farooq, PhD

 

With an annual lending commitment of $25 billions in 1994 and total outstanding loans of $140 billions, the World Bank remains the largest multilateral lender since its inception at the Bretton Woods Conference in 1944. The bank is governed by a 24-person board, representing 176 member countries. Members of the board share power in proportion to the amount of paid-in capital or "subscription" to the bank. With US at the top, the five major donor countries alone -- US, Japan, Canada, Germany, and France -- carry 40% of the voting right. Thus, it is obvious that this World Bank is by the "first" world.

Since the borrower countries are usually from the third world, it is avowedly for the non-first world. But there is more to it than meets the eye. Even though the bank provides development lending to the developing countries, and thus it is meant for the betterment of these countries, there are two important issues: its motive and the nature of operation.

This triple-A rated bank has always been an envy of the international financial organizations due to its huge lending capacity and the international political clout it carries. There has never been a dearth of admirers and critics of the bank. But especially during the last decade, the bank has come under a new level of scrutiny not from its critics alone, but also from many insiders as well. According to Don Babai, a research scholar at Harvard University's Center for International Affairs, "One big crisis facing the World Bank is the fact that it is being pulled in so many directions. The burdens the bank has been asked to shoulder have become increasingly heavier."

As far as the motive is concerned, it is noteworthy that international development assistance, in general, has not reduced the dependency of the developing countries on the external assistance, rather has increased it. A less than 25% rate of compliance with loan conditions and financial agreement on the part of borrower countries has been a nagging problem. But the bank often does not, or rather cannot, do much about it because enforcement of these covenants might upset the political status quo in the borrowing countries. Also, the bank has an aggressive policy to target borrowers, quite similar to the way the credit card companies in the US seek out new customers. Wapenhans Report on World Bank, named after former World Bank vice president Willi Wapenhans, illustrated the point that "any idiot can lend money. Pushing out money to meet targets has been the way (bank) managers get promoted."

Based on the concentrated voting rights, a few countries have a disproportionate influence on the policies and operations of the Bank. Often such influence may take a political tone, where certain donor countries push for or prevent the approval of a specific project. Thus, the division within the bank between the donor countries and the borrower countries has been a constant struggle. Donor countries often complain that "the borrowing countries have as their mantra, 'we want more power with fewer conditions and less preaching.'" However, the fundamental crisis the Bank is facing in its 50 years of operation is not due to this division, but the very nature of its mode of operation.

The Bank is preoccupied with the expansion of its lending program, especially for country-based infrastructure-building projects. Instead of targeting the poor people through projects that help augment their income through relevant education, training, and capital, the bank seems to exclusively favor large-scale, capital intensive, mega-projects. Yet, many of these mega-projects have resulted into mega-failure. The hydroelectric dam on the Narmada River in western India at $450 million threatened the habitat of 100,000 tribal poor. Another 140,000 families would have been affected by the attendant canals. After a 10 month study by an independent international panel found the project "flawed." The examples of such "flawed" projects of the Bank abound in Latin America, Africa, and Asia. Yacyreta, the largest hydroelectric dam in the world along the Argentina-Paraguay border that has already claimed $760 million of World Bank fund, will result in forced relocation of 50,000 people from their homes.

Critics also point out that many such projects of the Bank are truly "about creating employment for Western engineers using World Bank money." Interestingly, if elimination of poverty is World Bank's top priority, it is not reflected in its lending pattern. In contrast to 44% of bank's funds disbursed to the five largest of 83 borrowers -- Brazil, China, Mexico, Indonesia, and India, the lending to 30 needy countries in Sub-Saharan Africa in 1993 was only $2.82 billion in 1993, a paltry 1% of total funds.

Even though the bank also has success stories, it might be time to consider whether it has outlived its usefulness. If the mode of operation is not made relevant to the problems of the poor and more needy borrowing countries, then the failure rate of bank's projects might increase dramatically, pushing it toward a serious crisis. And, if the bank does not become free from the political clouts of the donor countries, or does not extricate itself from being a reinforcement to the political status quo in the developing countries, then there is good reason to be deeply concerned about the role of the bank.

All developing countries that have to count on foreign aid or lending from institutions such as the World Bank and International Monetary Fund are vulnerable to donor countries' manipulative power. Muslim countries -- with majority of them being less developed, dependent on western aid, characterized by corrupt political establishments -- are especially vulnerable. These international financial institutions by the first world may be outwardly for the non-first world, but true development of these developing countries may not be these institutions' true motive, or can they truly help achieve development.

[The author is an associate professor of economics and finance at the Upper Iowa University. This article was previously published in the Minaret, September 1995.]

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