who will be next World Bank President What will they do


Meltzer Commission Back In Style The nice thing about the current scandal is that its putting a spotlight on the World Bank. Journalists who do not want to defend the indefensible or state the obvious are opting to give us some substance. Washington Post syndicated columnist and right leaning George Will brings up all the Meltzer Commission talking points in his latest column which argues for the elimination of the Bank.

As those who followed the Bank in the 90s will remember, Allan Meltzer chaired the commission, and much of the work of the report was done by Adam Lerrick. Both get quoted in Will's column. The report argued that the World Bank in its present form is essentially a market distorting mechanism which provides perverse incentives for governments to borrow from the Bank rather than from private capital markets. It recommended that the Bank be converted into a small grant-making institution for the poorest of countries who have little access to private capital. Funny how the right and the left can agree from time to time.

When Wolfowitz came on board in 2005, many of us assumed that he would have a copy of the Meltzer commission on hand and begin implementing its proposals. So far, there have been no moves in that direction that I can see. But maybe his departure will open that door again.

Sameer Dossani ~ May 10, 2007


There is no question that the Bank system is in need of reform and repositioning as client needs have changed.

The world is awash in capital in select places, but not necessarily in the LICs or in the sectors that have high 'leverage' like systems to provide clean water for the poorest population of the poorest countries.

Likewise, there are now many new Foundations (like the Gates Foundation) that have begun to compete in the same space.

There is clearly still a need for a World Bank Group, and not just one that doles out grants, but one that try to finance projects that would be otherwise not funded.

The very act of financing a project, as opposed to outright grants, encourage responsible financial behavior from the borrowers, which is a good thing.

At the very least, it means that fewer and smaller boondoogle projects (like bridges and roads, etc. to nowhere funded by the US and Japan) are built.

The very process of securing Bank financing is itself a very helpful process in improving the lender's capabilities and understanding of the international financial system.

Even better, the Bank might be able to encourage a market for these 'risky' loans to become marketable by taking in private partnerships in lieu of funding projects wholly or with governments.

Having said that, there is a very legitimate question as to how big an institution the Bank need to be (staff etc. wise) to do the job, and whether or not some of its functions can be privatized.

A even larger question might be, what if the Bank were privatized, and become a listed public company traded on the world's stock exchanges?

Is it that radical a step? Would it not significantly improve governance if there are shareholders the Bank have to respond to who are not at the beck and call of political appointees from a handful of OECD countries finance ministries?

There is room for open discussing once PW and his cronies are gone.

None ~ May 10, 2007, 09:36 PM

Sameer: On this particular point, I totally agree. As it stands now, the World Bank has outlived its mission, and in my opinion should be done away with and remade into something that has a use in a post-Cold War world.

Oddly, many of those who support ousting Wolfowitz within the Bank may get the worst thing of all - What they asked for. A new President, if picked from corporate America, would most likely streamline the Bank by foremost eliminating its most obviously useless parts. If picked from Treasury, the view would be much the same. I would not be looking at the Bank as a long term career choice at this point in time if I worked there.

In other words, privatizing the Bank. At this point, it's not such a bad idea, and you are correct that the right agrees on this particular point.

DC Worker ~ May 10, 2007, 09:56 PM

Professor Allan Meltzer is an eminent monetarist economist. He was never a Congressman and he is too shy and scholarly to be elected to anything (other than the presidency of the AEA).

George Will's pedantic little column is surprising for a respected intellectual of his stature. It appears like a recycled piece of extreme free market ideological dribble.
No one takes the Meltzer Report very seriously anymore. Just like you good people in this website need the World Bank for the bad reasons and feed your blogs the poor need the IFIs for the good reasons.
They are part of the weave of the capitalist system and globalization. Reforms are needed but do not get carried away and cut off your head to cure your acne.
George Will uses the kerfuffle caused by the Wolfowitz incident to try to stir the pot and a create a bigger fundamentalist kerfuffle, but his arguments went kerflooey in his column.

Lycanthropologist ~ May 10, 2007, 10:07 PM

The Meltzer Commission was a child of the American Enterprise Institute, where Lynn Cheney is a Senior Fellow.

A neocon cesspool.

The Mahdi ~ May 10, 2007, 10:10 PM

Lycanthropologist, thanks for your correction (now changed) and I agree with your opinion of the column.

The capitalist system and globalization, of which you claim that the IFIs are an integral part of, are the real problem. While growth rates are increasing as countries begin to reject the IMF/World Bank neoliberal recipe for economic stagnation (budget austerity, liberalization and privatization), global income inequality continues to rise. This is because the interest of elites, including domestic and transnational corporations, are prioritized over all else. I have yet to see the study of the impacts of the liberalization of coffee on coffee buyers or the privatization of cotton boards in Africa on European garment manufacturers. I imagine those studies would show why the IMF and World Bank continue to adhere to policies that have been disastrous for the world's poor.

You're right that they are key to the system. It's a system of institutional corruption, where ILO recommendations may as well be toilet paper and the IMF/World Bank agreements are written in gold. If we are serious about democracy and bottom-up development, these institutions have to go. I think I speak for many of my fellow bloggers when I say we're happy to make our livings elsewhere. For us who have no access to the World Bank's largesses and frivolties, it's not a particularly good life at the moment.

Sameer Dossani ~ May 10, 2007, 10:29 PM

Yes, from time to time developing countries can do without the WB (and IMF) -- when the private financial markets are favorable to them. But when they are not, i.e. most of the time, they are quite happy to return to these institutions!

Jean-Pierre Jacqmotte ~ May 10, 2007, 10:32 PM

Sameer. You run a good blog, RESPECT! (as Ali G would say) the topics have great value and raise the level of the debate beyond the juicy delightful taste of gossip and leaks. Keep the good work.
Mahdi: your name has to be respected, the AEI has serious responsible well intentioned people there also. ( Fred Thompson is a board member (!)).

Ok then, let us work on changing the system or work on helping to change the injustices of the system. Many people working in the IFIs work there for that purpose and to bring knowledge and technical expertise in addition to good intentions. I have worked there and entered through the doors on the left (I was also arrested and was exiled from Chile by the military). WB staffers may have been co opted but you can see the results of your work, in the eyes of healthier chidren, better living conditions, highways, electrification, educated girls, clean water, and dignified people. That is meaningful and valuable. (The pay is good but one works very hard for it). So, let us keep the debate going and again: RESPECT!

Lycanthropologist ~ May 10, 2007, 11:17 PM

Lyca: Reform is not the option at this point in my opinion, starting something entirely new is the answer.

In terms of your theory on global capitalism, it stands to reason that the root of capitalism is markets, and market creation, though in the end serving self interest, also raises the standard of living in poorer nations.

The self interest does not stem from the system, it stems from the institutions that have created it. In its present form, the World Bank is kept on life support for the good of its workers, not for the good of the poor. The result is internal corruption and institutional apathy that makes the World Bank the poors' worst enemy. Rather than receiving the services and infrastructure they need, poorer nations are provided shadow projects and inexcusable shams that profit them nothing. While a bridge might be built, for instance, it is either utterly inferior in construction, it cost too much because of pay-offs, or it left in an area that lacks the infrastructure to put it to good use.

Given a newer form as suggested by Sameer would allow a stream-lined process with a goal for what is needed in the worst nations, and an ability to make true progress without the need to work through several often battling multi-nationals to complete what is started. Expertise would be provided through contract, and the transparency so often requested would be created through the entity being public. The SEC, shareholders, etc. would not allow money to go to waste and would act as a monitoring system that is already functioning and in place.

It is an interesting concept, one worthy of serious consideration. It sells instantaneously to Americans as a group because it reflects a corporate structure the country is very familiar with and crosses party lines. It also takes the political nature of the entity that exists now, with nations at war within the organization for supremacy, and destroys it. In my opinion, that is the very best result of the entire change. Gone is the need for quotas from different nations, warring factions, national rivalries, and in its place is substituted pure competition, merit hiring and retention.

DC Worker ~ May 11, 2007, 12:54 AM

1. On the systems change dimension of the Bank's work:

Well, first, we all know that the polite term these days for technical assistance, as George Will calls it, is institution building or capacity building. Done right, focussed carefully on the right systems, seriously led and managed by national teams who know what they are doing and are not dominated by outsiders, plugged into multi-polar networks, and with no donor-driven politically correct agenda, they can do much vital work.

This was the model in places like Korea and Singapore, and in China and India it continues apace. In fact, the need never really ends. A great deal of systems enhancement and transfer and lerning from one another still goes on between the countries of Europe.

Tips for the Bank here: Disengage from the Ministers and Ministries of Finance, bad directions to come from for this dimension. Get rid of PW and Shaha who seem very top-down and itchy-fingured with the mandates. Get rid of the gun-at-the-head conditionality on most loans. Learn to do system-change and build method (how many Bank staffers can map out even a simple system?) and get into multi-polar networks in a really big way.

Oh and read Clayton Christenson on always starting small. The Bank's urge to often or mostly do things very big, with targets and guidelines and yardsticks, is not exactly the way to a relaxed tension-free learning environment, where risks are taken, mistakes are made, systems and invented and reinvented on the fly, and people learn things without being roasted if the "do wrong".

2. On the capital funding dimension of the Bank's work

There is a reason that so much capital investment here in the US flows from taxpayers through the layers of government to the infrastructure projects. The US private financial sector does not on the whole fancy funding roads, water, sewage, hospitals, schools, things like that.

It is kind of silly to suggest for poor countries that either (1) national taxpayers or (2) the private sector "awash in capital" should do any differently. So I'm with lycanthrope above on this one: good work IS being done by development banks here, and so long as there really is serious national leadership on the priorities, it looks like nothing is fundamentally broken.

Tips for the Bank here. I wouild like to see the IMF and World Bank insisting that the US Federal Government adopts some kind of capital budget! After working out some really good models. That would help eliminate some of the pork-barrel stuff, some of the short-termism, and some of the anger among taxpayers (especially right-wing taxpayers) over "their money". It'd increase research and education spending, and it'd be a very healthy addition to the (presently unfunded) rolling planning the Federal Government brought in a decade ago under the GPRA act.

Same goes with any other country without capital budgeting! There ya go...

Peter Quennell ~ May 11, 2007, 01:23 AM

Logistically, how do you "shut down" an institution with 10,000 employees and offices all over the world?

interested ~ May 11, 2007, 02:48 AM

You lay them off and close down each operation by region.

In other words, the same way any company does it.

DC Worker ~ May 11, 2007, 02:50 AM

There is complexity in the world and institutional realities are complex. The World Bank and the other IFIs are the result of long and detailed agreements, covenants, treaties. Those who think that institutions with long history and capabilities are easy to undo are stopping too early in their thinking. The economics is also complex. Private companies, suppliers, financial institutions, consultants of all types, depend on the work done by the IFIs. Development is an industry highly diversified with important linkages everywhere. A few trillion dollars are leveraged by the capital of the banks.The legal structure, the capital structure and the outstanding debt of the IBRD and other IFIs is another area. Take a look at the articles of agreement also and the financial structure of the banks, and how important they are in the world financial system. When discussing these topics one should be careful to take time to learn what there is in order to offer plausible ideas for change. The rest is just magical thinking or the innocence derived from ignorance of reality. It does not get solved by a Revolution either, whatever that is these days.
This is a business for grown ups and takes more than just simpleminded George W Bush type bluster.

Be good now, do not call me names please.

Lycanthropologist ~ May 11, 2007, 05:01 AM

It is as complex as you wish to make it.

The United States Congress conducts a vote to withdraw from the World Bank, the World Bank loses 30% of its funding. America's population is happy, and you then start another purely American institution to administer international assistance. The World Bank runs as a shadow of its former self, in some other country.

You can start with that scenario and move from there, Lyca. Grown ups know when to fold their cards.

And not one name has been hurled.

DC Worker ~ May 11, 2007, 06:02 AM

Good man.

President Hillary will probably veto that anyway.

We have USAID already for international assistance.

Lycanthropologist ~ May 11, 2007, 06:24 AM

Yes, DC Worker, it's time these over paid pissants got a dose of reality.

clarice ~ May 11, 2007, 06:30 AM

Can we not rehash the 50 Years arguments again?

Even today the IFIs are needed. Look to the private sector. It's great to quote all the statistics about the world being awash in liquidity and FDI, but look at where that private money goes and how it's structured.

There is still a role for the IFIs to play, in offering longer tenors and taking a more patient, long-term investment perspective than private money is willing to do in these markets, and more importantly in going past the first-tier companies in these countries who have easy access to capital and conventrating on the second tier and below which is too risky to attract private foreign money.

What we in the IFIs need to do is to stop competing with the international investment banks who are more than able and willing to fund the top tier corporates (read richest families) in our markets, and concentrate on the sectors and companies where we really are needed and can have the development impact. All well as the many countries that still are not seeing enough FDI to help them.

DC Worker, give us a break. In all likelihood a good 95% of the American public doesn't know anything about the World Bank (if you asked them, they'd probably think they could go there to get a toaster for opening an account), closing the Bank down isn't going to make them happy. And if you really think the US Government is going to do a better job by itself, and be less political, you're kidding yourself.

IFC staffer ~ May 11, 2007, 09:06 AM

Strong points, Lycanthropologist and IFC staffer. The capital side aint particularly broken, and its hard to argue with your points here: "A few trillion dollars are leveraged by the capital of the banks" and "the many countries that still are not seeing enough FDI to help them."

Systems (or TA, TC, CB, or IB!) are the real flashpoint, as George Will reminded us. There are thousands if not millions of systems in any economy (processes if you like) and typically the better and more nimble the systems are, the more the investment flows in. Neither USAID nor the Bank are very good at helping on this front; the Bank is a latecomer anyway, and as many staff observe, it's an odd game for a bank to be in. The choices seem to be either massive upgrade of capability in this dimension, or leave the touchy-feelly stuff to the rest of the UN and the bilaterals.

By the way there are more not less calls for UN involvement in this and that these days, and in the US the "drown the government in a bathtub" movement is fading fast. Some of the criticism on these threads sounds a tad retro.

Peter Quennell ~ May 11, 2007, 12:33 PM

IFC: Do you see the comment above from Clarice? The 95% you speak of would not bat an eye to see the entire system implode, and would be gleeful if it did. Do they know what these organization do (nor does the average European)? Probably not. But do they see them as a threat?

Yes. Americans are products of a national culture that distrusts large government, and are individualistic to a fault. They see the WB and most international orgs. as a direct threat to national interests. As a group, most Americans detest multi-nationalism, and give larger credence to self-reliance, isolationism and withdrawal from the World's problems.

As for whether the US Government can do a better job, are you trying to say that it would be worse than what the WB is doing now? It would certainly be more cost-effective, and the politics involved would be internal in nature, not a war between nations and ideologies.

DC Worker ~ May 11, 2007, 04:00 PM

OK, I was about to congratulate us all for having a civil conversation talking about issues until I read the last post. I know its tempting to attack people and not discuss issues on these threads but please don't. We would prefer to leave space for these discussions, but we'll take drastic measures if we have to.

IFC Staffer: I work for 50 Years Is Enough Network, so asking me to forget its arguments won't work, I'm afraid. Your arguments make perfect sense if you are taking the point of view of an institution that wants to keep itself relevant. What if we consider other points of views? How about those of a) governments whose sovereignty has been trampled on by IMF and World Bank structural adjustment policies for 25 years, or b) citizens who have seen their way of life destroyed by policies of liberalization, privatization and budget cuts.

I think their points of view may have more to do with accountability and change than with finding points of comparative advantage.

Lycanthropologist: No one is saying that these institutions do not do some good. The question is, do they do more good than harm, and there I think the answer is undoubtedly no. Just look at the portfolio. 60% Infrastructure, power and adjustment lending.

Sameer Dossani ~ May 11, 2007, 06:50 PM

There is a lot of value in infrastructure, electricity, water supply, telecom, roads. There is even some value on structural adjustment lending if it allows to reduce subsidies and rent seeking and get close to some form of "efficiency" prices and prevent domestic and external inbalances. There are many examples of the success of these forms of lending. Even balance of payments loans were helpful to get countries out from the crises of the 80's and 90's.

I even dare to say that these institutions have done more good than harm. As agents of modernization and sources of capital and knowledge they have played a critical role. Even the efforts done to improve governance have some measurable results. All these institutions have done work on justifying their existence and there are empirical studies to evaluate the benefits (and costs) of aid and development financing.

This thread is getting a little long and some of the noise of clashing egos has sidetracked the discussion. Maybe you want to open a new thread to address these important and very interesting issues.

Lycanthropologist ~ May 12, 2007, 12:01 AM

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