CEE Bankwatch Network |  RSS feed RSS
Free counter and web stats

Unofficial Track Record of the World Bank

This briefing was prepared by
József Feiler for the
CEE Bankwatch Network

A ... basic truth is that development cannot be halted, only directed. And the Bank cannot influence progress from the sidelines. It must be part of the action. With the developing nations, we must go on learning by doing."

Barber Conable, President of the World Bank, 1987

Contents

Historical account
Making the poor poorer?
Environmental and public involvement add-on
Where are we now?

How did it start? On 30 July 1944, two special trains left Washington and Atlantic City with hundreds of well dressed men. They were heading towards Bretton Woods, a holiday resort in the US as participants of the financial conference of the United Nations. Still remembering the economic nightmare of the ‘30s, they planned to establish the foundations of the new economic order of the post-war period.

The visions of Bretton Woods incarnated into two institutions-the International Bank for Reconstruction and Development, which is commonly known as the World Bank, and the International Monetary Fund (IMF).[1] Today more than 180 countries are members of the two institutions. They are at the same time subscribers to its capital and target areas of its activities. [2]

Remembering the 1930s, the founders of the Bank anticipated that the private sector would not be able to provide an adequate supply of capital to developing countries. The Bank (later with the regional development banks) intended to provide the needed but missing capital. The Bank has three main functions in order to fulfill this mandate:

In order to obtain membership in the Bank, countries first must become members of the IMF. In addition, countries must make two financial commitments. They pay five to seven percent of their capital to the Bank at the time of joining and the remaining sum can be requested by the Bank if necessary (called callable capital). Based on this as a guarantee, the Bank can borrow from the commercial market. Its creditworthiness is also protected by the agreed ratio of 1: 1 (i.e. credits outstanding may never exceed the total amount of committed capital and reserves). By this means, the World Bank enjoys a so-called "triple A rating", which indicates the highest degree of confidence in the international capital market.

The amount of contribution by a country to the Bank’s capital determines a country’s role and weight in the decision-making of the Bank. Based on their contribution and economic status, they could be divided into two groups: donor and recipient countries.

According to a study of the Institute for Policy Studies, released in 1998, "The World Bank is the largest multilateral founder of climate-changing fossil fuels. Since the Earth Summit in Rio in 1992, the World Bank has spent roughly $13 billion on oil, gas and coal projects around the World."

The World Bank governance theoretically rests with the Board of Governors in which every member country has a seat, usually occupied by the Minister of Finance or head of the central bank of given country. Formally, they elect the president of the Bank who happens to be US citizen in all of the cases. The Governors convene once a year, but the operative power lies in the hands of the 24-member Board of Executive Directors.

The Articles of Agreement ensure that the five biggest shareholders (US, Germany, Japan, United Kingdom, and France) can select their own Executive Director. The remaining 19 directors are elected by the remaining countries. The weight of votes is determined by the contribution of each country to the Bank’s capital. Therefore, it is not surprising that the ten most industrialized countries control more than 50 percent of the votes.[3]

The first defined project of the World Bank was to assist the financing of the post-war reconstruction of Europe and help the economic development of its poorer member countries. In most cases it finances large capital projects, like dams, highways, power stations and structural adjustment). Rhetorically, the Bank is committed to decrease poverty and to promote "sustainable development". It also declares in its Articles of Agreement that the Banks decisions can not be influenced by political character, only by economic considerations.

During its decades of existence, the World Bank Group developed four different institutions of financing.

Historical account

The first mandate of the Bank, the reconstruction of Europe after World War II, was not really fulfilled as this role was taken over by the Marshall Plan. It only gave loans to France, the Netherlands, Denmark and Luxembourg and the total amount of those loans was barely one percent of the amount of grants under the Marshall Plan.

During these times the long- lasting plague of the Bank became evident -- the lack of bankable projects. The Bank wants to justify its own existence and extend its power over the member countries by increasing the number of projects for the sake of "development" and seeking more and more money. Due to the internal pressure to lend, the Bank encourages recipient countries to take on mega-projects with little regards to the real development impact of the project. It supports projects that are feasible without its intervention in order to influence the lenders and direct their path of "development".

The Indian Sardar Sarovar (Narmada) project as planned includes the construction of a huge dam, a 260 kilometers long reservoir and 460 kilometers of channels. Its environmental implications are enormous. Under existing plans it will flood 350 thousand hectares of forest and 200 thousand hectares of arable land. In addition, it will force the resettlement of 1 million people who do not want to leave their living place.

The loan for the Netherlands was the first to cause considerable turmoil on an international level. The Netherlands received its loan for reconstruction despite its colonial war and in this way the loan indirectly supported the economy behind the war. The early activity of the Bank was a harbinger of the future. Even today the Bank is restricted from taking into consideration anything other than economic factors. Although the members of the Bank are countries that signed the Charter of the United Nations, in which they subject themselves to the resolutions of the General Assembly, the Bank was prepared to act against the will of the majority of its shareholders in order to influence the fate of a project. For example, in 1965 the UN called on all of its specialized organizations and the World Bank and International Monetary Fund to withdraw financial and technical assistance from Portugal and South Africa. .In the case of Portugal, the reason for call was that Portugal kept Angola and Mozambique in colonial order, while in the case of South Africa it was because of apartheid. Nevertheless, that same year the Bank gave a USD 10 million loan to Portugal and USD 20 million loan to South Africa.

The Bank gave loans on the basis of "economic rationality" to those countries that were governed by heavy or even bloody hands. In the 1970s, the Bank quickly started to provide loans to the newly emerging oppressive regimes in Chile, Uruguay, Argentina, Philippines, and Romania. The Bank denied loans to the democratically elected Goulart government in Brazil in the early 1960s, but after the military coup of 1964, the loans started to flow to the country. By the mid-'70s, loans had reached half a billion dollars. Chile did not get loans from the Bank under the democratically elected government of Allende, but after the coup of Pinochet in 1973, the country suddenly became creditworthy despite the worsening economic conditions.. Indonesia did not get loans before the military coup in 1965, which cost the life of half million people. General Suharto, the lord of the new order, gained the confidence of the Bank rather quickly and got the first loan in 1968, while by the mid '70s, the amount of loans to Indonesia increased to 600-700 million. According to some calculations, the Bank gave one third of its loans to the world’s fifteen most oppressive states in the fiscal of 1979.

The problem haunts yet today as many borrowing governments cannot be considered democratic. Many of the most controversial projects are carried out by these regimes and it is hard to anticipate that groups affected by these project will have access to public information concerning the project, not to mention being able to organize freely and defend their interest. Along with the authoritarian regimes, the Bank also shares responsibility for these projects when it gets involved in the development and financing of these controversial projects and closing its eyes to the obvious problems.

Some Bank staff and defenders of the Bank argue that projects would be worse without the involvement of the Bank. However, it is a weak argument because the bank staff knows about the social and environmental problems associated with the projects but they are not willing to mitigate them unless there is external pressure. It is demonstrated by the Bank's track record of disastrous projects that its involvement does not necessarily make things better.

Along with giving money, the Bank also participates in project preparation, implementation, and monitoring. For the Bank, a single giant- sized project involving a sizeable sum of money is simpler to prepare than to struggle with the nitty-gritty details of dozens of small projects requiring more time and money.

It is puzzling how the "fathers" in Bretton Wood imagined the separability of economic assistance from its political content. When the Bank uses its economic leverage to support the administrative branch of power against the legislative one, then it very easily influences politics. This is particularly the case when the countries of operations do not have centuries of experience with solid democracies. It can artificially elevate the importance of a ministry or agency (e.g. finance or energy) that keeps the requirements of the Bank paramount, in contrast with to bodies that consider other interests more important. In this way the Bank established the mechanism of non-intervening political intervention during its decades of operation.

Even in borrowing countries that elect governments, the World Bank's funding decisions largely bypass the democratic process since, in most cases, it is in touch with the executive branch of power.

Yacyreta Hydroelectric Dam, Paraguay and Argentina
The Yacyreta Hydroelectric Dam project is one of the largest and most complex construction projects ever undertaken in Latin America. It is a joint project between Paraguay and Argentina that has been under construction since 1983. On December 26, 1996, the World Bank Independent Inspection Panel recommended that the Board authorize a full investigation of the project. The claim submitted to the panel put forth that the project had "serious impacts on [local people's] standards of living, their economic well-being, and their health" and attributed the damages to violations of the World Bank and Inter-American Development Bank (IDB) environmental and resettlement policies. This project has severe environmental and social repercussions, including the flooding of over 100,000 hectares of land, 98 percent of which is classified as wildlands; irreversible damage to fish biodiversity and fishery upon which thousands of people rely; involuntary resettlement of more than 50,000 people; and many more. Though the original design included a reservoir height of 83 meters, construction was stopped at 76 due to the numerous negative impacts. Now the governments want to push forward the final 7 meters, which would double the area flooded by the dam, to help pay back the huge debts incurred by the project. The decision would need a green light from both the World Bank and IDB.

Decision-makers in executive power structures are crucial in determining the actual impact of the Bank projects because they are the ones who end up allocating Bank funds.

Until the early 1970s, the international capital flow was heavily controlled and most of the external capital available to developing countries was from official sources, both bilateral and multilateral. Foreign direct investments in developing countries were mostly limited to natural resource exploitation. This gave a key role for the Bank to open up developing countries to the economic forces of developed ones.

Making the poor poorer?

A part of the World Bank loans can be described as tools that enable poor countries to buy goods and services from developed countries on the price of their increased indebtedness. Most of the money lent by the Bank returns to the rich donor countries, which enables them to show their charity for the poor ones. In reality, financial support is given to the rich country investors and entrepreneurs in less developed regions of the globe. During the preparations of the projects, the Bank specialists tend to dismiss local expertise and local subcontractors for the project. In this way the international tenders give unequal opportunities to the much stronger multinational companies, which will bring back profits to the most developed countries. The real transfer happens between the public and the private sector of the developed countries. Keeping in mind that the loans are at nearly market rate interest, it is very hard to classify them as "aid". The developing countries should only take loans if the funded project directly or indirectly generates enough hard currency to cover the project costs. However, the financial conditions attached to the project are not realized in 78 percent of the cases. The World Bank's capacity to force compliance with its loan conditionalities is different in the case of different countries and more like a myth than reality. Many borrowing government state bureaucrats are also adept at creating merely the appearance of compliance.

If private banks would step into such projects as the World Bank, they would soon be bankrupt. The question is how can 97 percent of the Bank’s loans be paid back, despite the low efficiency of its projects? For some of the loans it is easy as the loans are taken by countries that are responsible for repayment from their own resources. Behind private sector projects there can be different types of guarantees, which boil down to similar government responsibilities at the end.

If countries fall six months behind on payments, the Bank stops disbursing on existing loans or reviewing new proposals. This would result in difficulty for the country to obtain any new loans on international financial markets because foreign investors would consider that country a high risk. Since no one wants to end up in such situation, countries try to repay these loans even if it takes away bread from the population.

In the late 1980s, the world’s 15 most indebted countries paid back more to the World Bank than what they received in loans and grants. This negative transfer worried the Bank, too, and forced them to make more loans to these countries. Additional loans are made for three reasons. One reason is the image. Collecting more money from the poor than what is provided does not support the image of a "development institution." The second is the fear of default. If a bigger lender like India, Indonesia, or Brazil would delay the payment of loans or would announce default on them, that would cause considerable loss for the Bank, impairing its image. The third reason might be the most powerful: default on loans and collapse of a country’s financial system that would inevitably bring down the foreign investors who invested in a given country. In this way, the loss would be transferred to the most developed countries that are the origin of nearly all foreign direct investment. Who wants trouble at home if it could be avoided by poor people paying for it? In the 1980s, the Bank bailed out the commercial banks and became the biggest creditor of highly indebted developing countries. Because of their preferred creditor status (i.e. developing countries have to repay the loans to them before other creditors) it receives more than half of all debt repayments of heavily indebted countries.[4]

Bujagali Dam, Uganda
World Bank Involvement: proposed IDA USD 70 million partial risk guarantee; proposed IFC USD 85 million loan

The U.S.-based AES corporation, the largest independent power producer in the world with assets of USD 11 billion, proposes to construct a USD 530-million dam near Bujagali Falls on the Nile. AES is in line to receive a USD 70 Million partial-risk guarantee from IDA, and USD 85m (Million from the IFC. Other funds would come from export credit agencies, OPIC, commercial loans and the company itself. The project has been characterized by intense political pressure, both from the Ugandan president and the US government, both of which favor the project. There has been intimidation of those who speak out against the project, especially in the region where the dam is proposed. The company proposing the dam has driven public participation.

Local activists are opposed to the dam for a number of reasons. First and foremost, the dam will not help the majority of the 95 percent of Uganda's population who are not connected to the national grid. The sheer lack of distribution capacity will mean that the majority of Uganda’s population will not benefit from this project. Instead, the increased energy will be directed toward industrial needs and export.

The project will permanently submerge highly productive agricultural land on the river's banks as well as islands of extreme biodiversity. The project will also drown Bujagali Falls, a spectacular series of cascading rapids, which Ugandans consider a national treasure. Finally, local environmentalists believe the dam will harm Uganda's chances to pursue true renewable energy sources like solar and wind. They believe a commitment to big hydropower now may preclude Uganda from pursuing such a path, and are convinced it will come at the expense of the rural poor.

Loans are not grants. "Financial assistance" is not an act of mercy but self-support for those who are supplying the capital. This translates into, good business. The system is circular. The Bank tries to sustain a system that is not efficient and brings some of its countries to the brink of collapse, which can be avoided only by pumping additional resources into it. Given the nature of the system, it can only mean that the postponed problems return and are magnified.

Under the structural adjustment programs of the World Bank and the IMF, per capita income decreased by ten percent in the ‘80s. According to the Bank’s own estimation, one third of the region’s population lived already in poverty in 1990, and the number of extremely poor increased drastically. In Africa, where the structural adjustment programs helped more than 30 countries, the real wages decreased by 50-60 percent in the 1980s and the visible unemployment quadrupled.

It is well known that the Bank advised several sub-Saharan African countries to convert their agricultural areas and some of their forests into plantations of monocultures where they can produce goods that can be export for hard currency, i.e. cocoa, cotton, coffee. Since the advice was given simultaneously to several countries, the supply of these goods on the international market grew significantly over time. As a consequence, the prices of these goods went below the costs of their production, but the well advised African countries were forced to produce the "cash-crops" because they had to generate hard currency at any price, in order to pay back their loans. The increase of production caused environmental problems such as loss of forestry and biodiversity. In addition, domestic food production decreased, which increased poverty in the country.

The structural adjustment programs (SAPs) of the IMF and the World Bank have been criticized for a long time by NGOs. The SAPs usually result in a reduction of government spending; devaluation of currency to lower the price of exports; trade liberalization; removal of price controls and subsidies; and privatization of state companies.

Devaluation is meant to stimulate exports because it lowers the price of export products. However, as this strategy is applied to a large group of countries producing similar commodities, the IMF, in fact, encourages these countries to lower prices and to produce more for a market that is already sated. Moreover, devaluation leads to higher import prices. This trend can be harmful for developing countries as imports often make up a large share of the economy.

Trade liberalization measures threaten agriculture and domestic industries. Many small producers and farmers are not ready for "free" competition on the world market, and they are certainly not capable of competing with the heavily subsidized agricultural goods from the OECD countries.

More generally, reducing the role of the government in economic life means that the government is less capable of protecting the people and their environment. For instance, to increase exports, industrial activity and agriculture are expanded, causing industrial pollution and exploitation of natural resources.

The structural and sectoral adjustment loans aim to avert the debt crisis of the given country. Their size is usually between USD 100 and 500 million with a quick payback period. These loans involve the restructuring of the country’s economy or a sector of it. The loan is approved and disbursed only if the country subjects itself to the macroeconomic changes designed by the World Bank and the IMF. In order to get out from the debt-repayment problems, the changes are made to tune the country’s economic structure in a way which makes it able to pay back more in hard currency in shorter term. It makes the creditors of the country certainly happy. How does it happen? The World Bank has a standard recipe; to drastically decrease the expenditures of the state budget, especially in such non-profitable sectors as health, education, social safety, infrastructure development and maintenance. Looking at the income side of balance sheet, the Bank finds it is necessary to fine-tune the economy of the country, a hard currency producing, export-oriented machinery. The local currency is devalued, local consumption is suppressed and perhaps a little oil added by tightening a bit on the tax system.

Government usually reduces its spending by lowering the budgets for health, education, and environmental protection, which leads to higher user fees and reduced access to these services for the poor.

The international financial market would consider countries out of step with the Bretton Woods sisters, the World Bank and IMF if these countries do not behave according to the Bank's expectations. An indebted country can choose to approach the helping hands of the World Bank or drown in financial crisis and economic isolation.

In 1995, the Bank published a document that reviewed Bank-supported adjustment operations in 53 countries between 1980 and 1993. According to the report, poverty increased in eight out of the 23 countries of the evaluation's core sample. Income inequality increased or remained unchanged in two-third of the countries, while per capita social spending fell during the adjustment in two-third of the countries. Social spending decreased (as proportional to GDP) in half of the countries. There were more than 3000 conditionalities attached to the Structural Adjustment loans studied, but only eight of them called for more resources for primary education and health care.

The Brazilian Grande Carajas project, which extended to 900 thousand km2 and intended to supply developed countries with cheap industrial raw materials, was responsible for the biggest destruction of Amazonian rainforests.

An internal report from 1996 was highly critical of the Bank's performance on poverty reduction. It examined 46 Poverty Assessments carried out between 1988-94. These reports outlined the country's poverty profile as well as the causes of poverty and the poverty reduction strategy. These reports were the basis for a dialogue between the country and the Bank. It appeared that the Bank had completed only half of the Environmental Impact Assessments (EIAs) it had promised to make. Moreover, the EIAs had hardly influenced the Country Assistance Strategy, the basic document summarizing the Bank's country lending strategy.

For a long time, the IMF and the World Bank denied the problem of multilateral debt. Partly because of NGOs criticism, the Bank and the IMF started to recognize the problem.

The Bank says that about 29 countries may need debt relief under the plan. Critics say the plan’s criteria for eligibility are too restrictive and many more poor countries need help with their debts. Another criticism is that the plan heavily relies on other donors while it provides little actual debt forgiveness from multilateral development banks. For the heavily indebted poor countries, multilateral development banks are the only lenders who are being consistently paid (and the only ones consistently making new loans).

Today, the controversy seems to focus less on whether the Bank is funding enough anti-poverty projects and more on whether the gains from these loans are offset by the possible injury done to the poor by structural adjustment programs.

Environmental and public involvement add-on

From the early ‘80s the environmental activists began focusing on the devastating environmental impacts of the Bank projects. In 1981, Clausen, the president of the Bank, announced that a special environmental unit would review all the projects and that most of the overviewed projects have no major health and environmental impact. At that time, there were only six out of the 6000 Bank's employees in the environmental unit and only three of them in the area of science and technology. Three people assessed approximately 300 projects annually. These projects had a total cost of more than 12 billion dollars per year. Only one of them dealt with the environmentally sensitive sectors and more than half of the Bank's loans went to these sectors. Due to the NGOs pressure, the number of employees in the environmental division increased to more than 200 by the mid ‘90s.

Since 1987, the Bank's presidents have admitted past mistakes and by the mid-1990s the World Bank claimed to be a leading force for "environmentally sustainable development". As a sign of this commitment, the Bank created a high profile environmental department, which was a part of its broader reorganization in 1987.

The year of 1989 is a milestone in the Bank's environmental record. Due to external pressure, the Bank established its environmental assessment policy.

In 1992, a leaked document created a huge outcry as one of the leading economists of the World Bank, Larry Summers, recommended the "correction of the pollution statistics of the developing countries: the transfer of high polluting industries from the over-polluted North to the "under-polluted" South. One of the critics of the idea labeled it as "perfectly logical, but perfectly mad". Due to public pressure, the idea was abandoned but, in reality, its execution was well under way.

In 1992, the Bank conducted an internal review of 1800 projects, which showed that a significant percentage of them were not in line with the Bank's internal rules, not to mention the outside critics. In 1981, 15 percent of the projects received "non satisfactory result" qualifications. The percentage increased to 30.5 in 1989 and in 1991, 37.5 percent of the projects got non-satisfactory qualifications. In some sectors, like water management and agriculture, 42 percent of the projects were likely to encounter troubles during their implementation. According to geographical division, the worse performance was in the African region, while in some countries around 17 percent of the projects were successfully implemented.

The review found that the highest priority of the Bank was the pressure to lend, surpassing every other consideration, including the projects' quality. Internal budget resources were given to those units where loan volumes were high, not where the quality of projects is highest. Because of the long project cycles, it is difficult to assess the quality of lending operations within the operations framework. It would be difficult to anticipate concerns about the project performance if there were no penalties for project failure.

Partly due to the NGO pressures, the Board decided to establish an Inspection Panel in August 1993. The Panel was to deal with complaints from the people affected by the Bank-financed projects. However, the Panel's mandate covers only the IBRD and IDA activities. It would consider complaints regarding "a material adverse affect" from the World Bank projects resulting from the Bank's failure to follow its own procedures. The panel has three members who are appointed by the Executive Directors.[5] Although the existence of the Panel is important, it still has serious shortfalls. One of them is that the Panel’s independence is seriously limited by the fact that it has no independent power of decision. The Board of the Bank decides if a complaint will be heard and if the Panel's recommendations will be accepted. Furthermore, the Panel is not empowered to ask for compensation for people adversely affected by a project. Moreover, Bank management has better access to the Panel than the complainants. The procedure to file a complaint is complicated and requires considerable technical expertise.

By 1993, bolstered by the Morse Commission's official legitimization of the key elements of their critique, international NGO coalitions used their leverage over donor government IDA funding to push for broader policy changes in the Bank. These changes included better access to the project information, creation of an appeals mechanism for people affected by the project (Inspection Panel), and more accountability for the actual implementation of the resettlement policy.

In 1994, a wide campaign of criticism greeted the 50th anniversary of the Bank. NGOs did not agree about whether the Bank should be reformed or abolished, but they agreed that 50 years of such a bank was enough.

The Chad Cameroon Pipeline Project involves the drilling of 300 oil wells in southern Chad, construction of a 1070 km export pipeline to the Atlantic coast of Cameroon, and building an offshore terminal in South Cameroon.

The World Bank Board of Directors approved the project on June 6, 2000.

The International Finance Corporation will provide a $100 million loan to ? and up to $300 million in syndicated loans to the Oil Transportation companies set up by the consortium. In addition to the IFC loans, IBRD will provide $92,9 million to the Governments of Chad and Cameroon to secure their equity in the transportation companies. IFC involvement has also been crucial to catalyze over $1 billion in financing from commercial lenders, Export Credit Agencies, and international capital markets. According to the World Bank Group, commercial lenders "have indicated their unwillingness to proceed (with the oil project) without the Bank Groups involvement".

The project involves a number of environmental and social risks that have not been adequately addressed. These include a significant loss of fertile land for local farmers and cattle ranchers, limited access to clean water for the population, massive migration posing a threat to food security and increased risk of interethnic conflict in the region, threatening important rivers and fragile rainforests that are home to indigenous peoples, and threats to the ecologically diverse coastal region whose inhabitants largely depend on small-scale fishery and tourism.

In the current climate of political instability and rampant corruption in Chad and Cameroon, the project is likely to exacerbate inequity, foster violent conflict and boost corruption. Transparency International has rated Cameroon as the most corrupt country in the world for two years in a row. The risk of developing oil in the midst Chad’s armed conflict has not been mentioned or evaluated in the Bank Group’s appraisal of the project. The word "corruption" does not even appear in the project documentation.

In sum, the beneficiaries of this project will be the multinational oil companies and the two governments. The risk of project failure rests, however, with the affected population of Chad and Cameroon who will be harmed by environmental destruction, loss of livelihoods, ongoing human rights abuses and a deteriorating security situation.

In the same year, the Bank started to change the operational directives. The reason behind is, according to the World Bank, was to simplify policy implementation by reducing the volume of policy. Critics are afraid that the whole operation could minimize accountability, as there is no demonstrated ability to implement mandatory environmental and social policy measures. Although the Bank’s environmental and social impact is not in compliance with its written policies - in many cases, these policies are important as clear benchmarks to compare with reality. In this way it can be shown how the Bank lives up (or not) to the commitments in their internal regulations.

Between 1989-95, more than 1,000 Environmental Impact Assessments were carried out by the Bank. However, the influence of these assessments on the projects seemed to be limited. The World Bank itself concluded that the reports were often completed in isolation from the project preparation. The EIAs were prepared too late to alter the project; they were not integrated into the project sufficiently; and they did not consider alternatives that would cause less damage to the environment.

In 1995, after an Inspection Panel investigation of the Arun III Hydroelectric project in Nepal, the Bank decided to withdraw from a large dam project that threatened to displace many people. It seems, however, that economic considerations played an important role in the decision.

The current World Bank President James Wolfensohn has initiated some changes to make the Bank more "customer friendly" and to increase its effectiveness. The changes, summarized under the name "Strategic Compact," include bureaucracy streamlining and decentralization, new structure with Networks and Sectors, and shifting the lending from the large infrastructure projects.

Where are we now?

The Bank has doubled its size over the last 30 years. After nearly 20 years of NGO pressure institutions within the World Bank Group started to provide certain documents to the public. They established certain "safeguard policies"’, such as environmental assessment, information disclosure and resettlement. Some meetings and seminars organized by the Bank on various topics show a progressive approach. The Bank talks about targeting poverty and responding to the challenge of HIV. However, the core operations of the Bank seem to be the same. Project by project there are similarities to those that were prepared decades ago. Logic is the same. Structural adjustment lending is a type of lending that precludes public scrutiny and transparency that is possible in project lending. There is a new face or facade, but did the Bank genuinely learn or only adapted to new challenges to avert them at the end?

Scholars and activists debate. Certainly there is a change in the Bank and its activities. How far does it go? Obviously, the organization responds to challenges from the public in a much more professional way than it did a decade ago. It also increased its environmental capacity, although the people who stand behind this capacity are in a marginalized situation within the Bank. An Environmental Impact Assessment is not a guarantee for elimination of possible environmental damage. Also, this tool is considered a nuisance by those who develop projects within the Bank, because it takes money, time, and narrows down their possibilities in the project preparation. In this way, the tool of assessment is unlikely to contribute to better environmental performance in substance.

Core operations of the Bank are still around the paradigm of neoclassical economics – the analytical models and country strategies are based on its concepts and applications. This paradigm considers environmental and social values external to its modeling system and by nature unable to assess them. Until this basic ‘"religion"’ of the Bank, the orthodoxy of neoclassical economics is not reformed, we can not evaluate the reforms of the Bank as profound. Decisions that are made in accordance with the Bank’s way of thinking do not correspond with social and environmental values. Therefore, everything that is about societies and environment is added-on, detachable, and of low priority. Can the Bank be considered as a good pupil who learns well?

No, it does not learn even at the cost of failures marked with human pain and environmental destruction. It only adapts and tries to find the easiest ways to avert external critics and pressure, and adapt to changes around it. Such a large institution has its inertia which forces it to change as little as possible. Real learning would require more sacrifices and changes from the institution, even though it is the only way for its long-term survival.

 

Footnotes

[1] Conceived later was the third "child" of this vision, the World Trade Organization.
[2] Only Cuba, North Korea, Brunei, Taiwan, the Vatican, and few microstates are not members.
[3] In all of the Multilateral Development Banks, including the World Bank, the USA, countries of the European Union and Japan control well over half of the votes in the Board.
[4] The problem of international financial institutions bailing out investors of developed countries still exists. In the event of a crisis, instead of letting investors take the risk that is concomitant with their gains, the banks still save investors from losses by turning the losses into debts for the poor.
[5] IFC and MIGA projects fall outside the mandate of the panel. The World Bank developed a separate, weaker mechanism for the private sector operation, an ombudsperson.

The CEE Bankwatch Network is an international non-governmental organization (NGO) with member organizations from countries of Central and Eastern Europe and the Commonwealth of Independent States. The basic aims of the network are to monitor activities of the International Financial Institutions in the region, and to promote constructive alternatives to their policies and projects. The CEE Bankwatch Network was formally set up in 1995, and become one of the strongest network of environmental NGOs in Central and Eastern Europe.

Address: CEE Bankwatch Network
Kratka 26
100 00 Praha 10
Czech Republic
e-mail: main@bankwatch.org
web-site: bankwatch.ecn.cz