Close Down the Masters of Reinvention:

The Case for a World Bank Shut Down

Multinational Monitor magazine, June 2000


The masters of reinvention are at it again. In a time-tested stratagem, World Bank officials now readily admit that the Bank has committed grievous errors in the past. But now, they say, things are different.

The Bank has adopted this mea culpa strategy over and over again during the past couple decades. Little changes after these declarations of previous mistakes, but the acknowledgment of prior wrongdoing and failure does help deflect criticism.

Today, acknowledging the problems accompanying road building, dam construction and other mega-infrastructure projects, Bank officials say they have turned their attention elsewhere. We have a renewed focus on poverty, they say.

Repeated ad nauseum, this line has served the Bank well, especially in media coverage following the April protests against the Bank and International Monetary Fund (IMF) in Washington, D.C.

Here's the problem with the Bank's new story: On the one hand, it is continuing to support an array of megaprojects with hugely destructive consequences for the environment and especially for the poor. On the other hand, much of the Bank's poverty focus is likely to make living conditions for the poor even worse.

Ask the people in Laos, or Chad, if they have seen evidence of the Bank's shift away from major infrastructure projects. In Laos, the World Bank is lending support to the Nam Theun 2 Dam, imperiling the well-being of indigenous populations, endangered species and the financial future of Laos, as Witoon Permpongsacharoen explains in an interview in this issue. In Chad and Cameroon, the Bank in early June committed itself to lending catalytic support to an oil development and pipeline project, to be carried out by Exxon/Mobil, the Malaysian company Petronas and Chevron, that threatens to replicate the environmental, human rights and development nightmare of Shell's oil development in the nearby Niger Delta.

"It's clear that many of their projects create poverty," says Witoon when asked about the Bank's new poverty focus. "Many Bank projects destroy people's lives. They can no longer live in their rural area."

Meanwhile, the Bank is increasingly complementing its direct support for major projects in developing countries with key insurance and financial support for foreign corporate investment in developing countries. Noting the increasing velocity of private capital flows into the Third World- at least to selected regions and in selected sectors-the Bank is placing increasing importance on its International

Finance Corporation (IFC), as well as its Multilateral Investment Guarantee Association (MIGA), both corporate welfare enterprises. The IFC provides loans to and takes equity positions in private sector projects. It has a strange penchant for backing oil, mining, gas and major banking investments. MIGA provides political risk insurance and related to services to similar types of private investments. Big, especially foreign corporations, are the main winners from these projects, which frequently do nothing to promote real development-or set it backwards.

What about Bank loans that are intended to address poverty? It turns out that many of these are adjustment loans, which in the past fiscal year for the first time accounted for more than half of the Bank's total fiscal commitments. According to Bank definitions, a whopping 69 percent of its adjustment loans were poverty-focused (on a cure, supposedly, not to make things worse).

The World Bank's structural adjustment loans, combined with those of the IMF, have wreaked havoc in developing countries. Sub-Saharan Africa, the region of the world most subjected to structural adjustment over the past two decades, has seen income levels plummet and poverty increase. Developing countries that have done well in recent decades have generally ignored key structural adjustment prescriptions.

Less well known, at least in the rich countries, is the effect of the Bank's structural adjustment lending, focused on particular industries. By and large, the purpose of these loans is to promote privatization, marketization and deregulation of the targeted sectors.

Predictably, these schemes disadvantage the poor. Bolivian labor leader Oscar Oliveres describes in an interview in this issue how Bank-encouraged marketization led to skyrocketing water rates and an appropriation of communal water rights, shifting control from the poor to a subsidiary of the U.S. company Bechtel-until a mass movement reversed the privatization scheme.

Also in an interview in this issue, Dr. Vineeta Gupta explains how the Bank has encouraged the charging of user fees for health care, with excruciating consequences for the poor. A system which is supposed to exclude the poor from charges fails in practice-as is typical around the world- meaning the user fees deny the poorest access to healthcare services.

Peeling back the rhetoric and subjecting Bank operations to even a cursory examination shows that little has changed, at least for the better, at the World Bank. Most of what the Bank is doing is harmful, not because of poor project implementation-though this is surely a serious problem-but because the Bank is trying to do the wrong thing. Its obsession with the multinational corporate objectives of marketization, shrinking government and removing social restraints on private sector economic activity has been a disaster for the peopIe the Bank says it is trying to help.

Some critics review the record and urge major reform at the Bank.

But while there are certainly people working at the Bank with good intentions, and one or another project sponsored by the Bank may do more good than harm, an honest look at the World Bank shows it is unsalvageable. It absorbs criticism and promises change, but continues as before. In many ways, for example, current Bank President James Wolfensohn's high-minded rhetoric about poverty echoes that of his predecessor a quarter century ago, Robert McNamara. In 1975, the Bank was churning out reports with titles like Assault on Poverty. This year, the Bank issued Voices of the Poor.

There is also a more profound reason to call for a World Bank shut down. It is time for major rethinking about the role of outside financing, and especially loans, in development.

The purpose of external financing should be to enable a country to buy goods and services from outside the country. Mozambique does not need dollars to purchase locally produced or generated goods and services, only for items from South Africa, Europe or the United States.

While there are exceptions-medicines being a good example-most of the basic inputs for a sustainable development program simply do not require much or any outside funding. Schools, clinics, land redistribution, clean water, ensuring food security-these raise difficult questions about the mobilization and allocation of local resources, but they do not require outside money.

And they certainly do not require external loans. Loans must be paid back, in foreign currency. Clean water should be a top priority of national governments, but it won't generate foreign exchange. South Africa seemed to get things right when the African National Congress said in its 1994 Reconstruction and Development Program that it would accept foreign loans only for projects that would generate foreign currency. (Unfortunately, the ANC seems largely to have abandoned its commitment to the Reconstruction and Development Program.)

All of this suggests that serious consideration should be given to a diminished and more targeted role for foreign aid and a dramatically reduced role for loans from public institutions (though such a reduction would require a cancellation of the Third World debt, payment of which now depends on a constant flow of loans-with the money coming into poor countries and going right back out as interest payments on prior loans).

In such a world, with drastically curtailed public lending, there would be little point in maintaining a World Bank. Whatever residual and beneficial functions would be left at the Bank could easily be shifted to more appropriate institutions at the United Nations and elsewhere.

IMF, World Bank, Structural Adjustment