World Bank found to be failing poor

Link to this article

by Julie Ziegler

The World Bank, the largest financier of projects in developing nations, is said to be failing in its mission to reduce poverty in the poorest countries by paying too little attention to boosting economic growth.

In the past 15 years, an internal audit found, the bank put too much emphasis on social development and cut spending on bridges, dams, pipelines and other projects that have a more dramatic impact on economic growth.

The World Bank's model to fight poverty in the poorest of nations "has, in practice, paid insufficient attention to fighting growth,'' the 115-page report said. "Without growth, no sustainable poverty reduction is likely.''

World Bank president James Wolfensohn, who is retiring at the end of May, cut by 40 percent financing for infrastructure projects since 1995 and shifted money to programs focused on climate change and faith-based initiatives, annual reports show.

While infrastructure spending has begun to rise in the past 18 months, some economists say World Bank president-elect Paul Wolfowitz will still scale back some of Wolfensohn's projects and overhaul the bank's US$20 billion (HK$156 billion) annual lending operation.

"Somehow in the last few years it became kind of politically incorrect to talk about growth in the bank, and one could only talk about poverty reduction,'' New York University professor and former World Bank economist William Easterly said. Only one-third of the developing economies have expanded more than 2 percent per capita in the past decade, the audit found.

In roughly the same period, the number of people living on less than US$1 a day increased in more than 40 of 100 developing countries for which there is data.

Wolfowitz is US President George W Bush's hand-picked nominee to succeed Wolfensohn. Since 2001, the Bush administration has sought to reduce what it calls mission creep and put the bank focus on infrastructure projects. It would also like the bank to be more transparent when providing assistance and to justify future aid with past results.

While improving health and education is important, Deputy Assistant US Treasury Secretary Tony Fratto said, "creating growth through the private sector is the only way to permanently raise living standards.''

A one percent increase in per capita income reduces the proportion of people living on less than US$1 a day by an average of 2 percent, the report said.

Excluding China, the percentage of people living on less than US$1 a day decreased to 23 percent in 2001 from 32 percent in 1980, though the absolute number rose to 880 million from 850 million because of population growth.

Most of the gains came in Eastern Europe, East Asia and India. In contrast, the percentage of people living in poverty in sub-Saharan Africa increased in both percentage and absolute terms.

The report acknowledges that the World Bank does not bear sole responsibility for poor growth in regions such as sub-Saharan Africa and places where graft is blamed for impeding growth.

"In the World Bank's defense, even an outspoken critic of the bank can recognize that many things beyond its control determine poverty and growth in poor countries,'' said Adam Lerrick, an economist at Carnegie Mellon University in Pittsburgh and a member of a 2000 congressional panel that evaluated World Bank policies. "However, no one outside the bank, and few people inside, know how effective the bank is,'' Lerrick said.

The bank should develop better ways to determine whether aid is actually being used for its intended purpose, the report said.

Jim Adams, the bank's vice-president for operational policy and country services, said a separate World Bank report finds that the success rate of its projects has increased from 15 percent in 1993 to 63 percent today.

Adams said the bank has also recognized the need to increase spending on bridges, dams, ports and roads and will outlay US$1 billion more on those projects this year.